Michael Porter Model - Essay Example

Michael Porter Model Michael Porter’s Cluster Model Michael Porter introduced Porter’s cluster model. The model identifies the suppliers, businesses and other institutions that are engaged with particular field. The elements of cluster are recognized to increase the production so that the company could compete in the domestic and international market (Park et al., 2012). The Cluster is used to increase the production units. It is also used to adopt new invention in the production and another process of the company. The model is also used to encourage more business in the particular field. Cluster includes six elements that are discussed below: Market Intelligence Market intelligence is a tool that is used to determine the position of the market. Day-to-day information will provide benefits to the company to enter into global and international market. The intelligence is necessary to analyse so that effective decisions could be made to enable the business to achieve the primary goal of the company (Traill & Pitts, 1998). Technical Solutions Technical solutions refer to the solutions that are identified to solve the problem that is related to the servicing or technical department of the company. The company could get benefit by making effective solutions to the problem faced by them while working in the industry. Competitive solutions are supported by the model to increase production and capture wide global market (Park et al., 2012). Pooled Purchasing Pooled purchasing refers to buying the product or material at the time when more benefits could be derived from it. Cluster model describes that pooled purchasing is helpful in increasing the production of the company, and the company would be able to derive more benefits by purchasing raw material in bulk quantity (Traill & Pitts, 1998). Skilled Workforce Porter believes that skilled labour is required for increasing the production and reducing the cost of the company. A skilled workforce is the asset of the company, and they must be utilized to derive effective benefits to the company. Skilled workforce is more important than unskilled force as they could effectively use technological advancements and increase the production efficiency of the company (Park et al., 2012). Access to High-Cost Resources Access to high cost refers to the ability of the company to purchase machinery and equipment that are used by the company to increase its efficiency and productivity. These resources are sometimes imported from other countries that cost high to the company. The model States that the company must analyse that if it can access those resources that possess high cost in the market (Park et al., 2012). Industry Advocacy Industry advocacy refers to the combined association or any other institution containing the entities similar to the business and suppliers and others that are associated with the type of business. These institutions set some principle regarding pricing and other strategies to restrict others to remain in the implied agreement that is adopted by most of the business entities in the industry (Traill & Pitts, 1998). Advantages of Cluster Model Following are some of the key advantages of the model • Increases production • Adoption of new invention and innovation • Analysing global market • Helpful in decision-making • Effective strategies to reduce the cost of production Increases Production The model increases the production by adopting different technologies and tools to increase number of units produced by the manufacturer. The production will increase if the information is gathered to identify the demand of the product in domestic and international market. Machinery and equipment and labour force will increase the production of the company (Park et al., 2012). Adoption of new invention and innovation The model allows adopting new technologies and innovations to increase the efficiency of the production along with the reduction in the cost of production. New technology is used by the company to increase their number of units produced and increase their customers by facilitating them through these inventions and innovations (Park et al., 2012). Analysing global market It is necessary for the business to analyse the global market conditions and marketing strategies to be adopted if the aim is to enter into the global market. The model facilitates the business to fully analyse global strategies prevailing in the global market. The model is also helpful in making a strategy to capture the wide global market (Held & McGrew, 2007). Helpful in decision-making The model is beneficial in making effective decisions regarding the adoption of strategies. The elements of the model are effective in providing benefits to the company to make decisions regarding pricing policies, production strategies, and others. It is beneficial for the leaders of the organization to take decisions by analysing the industry advocacy so that it could not contradict the implied principles of the industry (Held & McGrew, 2007). Effective strategies to reduce the cost of production The company has to take care of their cost that is occurred due to the increasing production. The cost effectiveness is necessary to analyse while increasing the productivity of the company. The model benefits the company as it could take advantage of the reduction in the cost of the production by using elements of the model. It is done by adopting new technologies, efficient use of resources and increasing the productivity of the skilled workforce. The company could derive more benefits by adopting cost-effective strategies (Held & McGrew, 2007). The competition all over the world has been enhanced due to the overall globalization, the need to gain an advantage was necessary, and, therefore, the economist studied the different models and their benefits. The economists and other personals identified that the business level competition was not enough to survive in the recent world, the nations on the whole needed to adopt measures that would help them to attain the competitive advantage. Michal Porters cluster model is used by different nations to attain the competitive advantage and to earn above average returns. The model was proposed to identify the different ways to achieving the competitive advantage in the global economy. The need was prominent to measure the internal environment known as the "Micro-environment" and to design strategies and policies that that increase the efficiency of production. The core microenvironment factors that were needed to be studied were to design the ways to measure the quality of the processes that were carried out in the business world. The thorough study of the business environment would allow the organizations to think and design the clusters that would be used by them. Finally, the company must consider the possible ways to make the operation most effective and efficient. Michal Porters cluster model was focused to improve the production of the businesses and the nations. If the companies and nations would follow the guidelines provided by Porter, they will easily improve the microenvironment. The improvement in the microenvironment will gradually lead the organization to attain optimal production capabilities (Karlsson, 2010). The other factors to be considered are the Macro environmental factors- the monetary and fiscal policies must be understood; the supply of money and government spending and generation of revenue through taxes must be studied by the organizations that want optimal productivity. The resources must also be indicated and used in the best possible means, the most important resources are the human resources. The development of human resource is very crucial, and the organizations must also study the political system of the nation. It is said that effective political institutions also help to increase the productivity; the government and authorities also work for the expansion of the businesses and also support the organizations to grow and provide subsidies. The final factor that is important to attain maximum productivity is to identify and utilize the endowments in the best possible ways. The organizational and national competitiveness is mostly explained and identified by the way in which an organization or nation utilizes its human resource; the investments referred as capital and endowments that are God gifted and natural. The best analysis of one organization could be done by itself, the company knows all the environments (micro and macro), and the competition is also included in the analysis. The main part that the company/ organization has to perform is to identify the different interaction and linkages it may create the relationships between the micro and macro environments and the resource utilization if not done properly, is considered to be the biggest hurdle in the production process. But if the resources are efficiently utilized will help the company/ organization to improve their productivity. The main process of gaining the competitive advantage includes the study of the clusters. The company may improve these clusters with the passage of time and create more opportunity to improve the overall production. The core objective of the organization must be to understand the possible elements that are the part of the business environment and to fit these parts together in the most effective manner, this will lead to higher and almost optimal productivity processes. The Porter cluster model deals with the: • Factors that are affecting the conditions of the business (internal and external). • The strategies designed by the firms/ organizations relative to their organizational structure and competitors. • The external environment that is dealt with the demand and supply conditions for the organization and • Analysing the industries that are related to the industry the business is working and also supporting their operations. The firms/ organizations that can follow and adopt the strategies effectively and efficiently are guaranteed to earn above average returns and also to improve the quality and quantity of their production. The basic advantage of following the Porters Cluster model is that it allows the company to gain a competitive advantage related to the production, and this advantage is very difficult to be copied by any of the competitors. The recent era of globalization have reduced the restriction of boundaries, any company can compete in any market of any region all over the world. Previously the only strong competitors were the local competitors and the strategies were designed and structured to cater the requirements and production in accordance with the local competition. But, today the competitiveness can be achieved by understanding the economic outcomes and the governments are now less strong than the previous periods. The Porters cluster model provides the company/ organization to compete in the global market and provide products in larger amounts. The strategy provides a competitive advantage to the organization and also develops economies to scale that results in earning above average returns. The Porter Cluster Model is effective, and the use of the model can be done attain customer satisfaction and loyalty. The companies that are interconnected can attain benefits on the larger scale and innovations are possible. The innovations and technological improvements are easily adopted and, therefore, the overall competition can be lowered/ decreased. The research and development departments work more effectively to provide better and innovative products to the customers. The cluster model can be useful to achieve higher productivity with regards to different clusters adopted by the organization. Porte’s Cluster Model is complicated because of which it is very difficult to implement but once the model is perfectly implemented it has greater advantages, and these advantages are not limited to a certain sector or industry. The impact of the importance of this model is mostly on business and society that will be further explained from the studies that have been carried out in the past. Porter’s cluster model is very complicated but at the same time it has numerous advantages. The economic benefits that are driven from the cluster model are far better from other models. Boja (2011) in his studies have also discussed about the advantages of the Porter’s cluster model. In the article, he has explained the model and its complexity in details and has provided information about the appreciation that the model has received from scientific community and governmental structures. Furthermore, it is observed that the porter’s cluster model is of great help to the entire society as it can bring fruitful changes if the cluster model is implemented in a proper manner. The model has its importance in both business and society as when implemented it provides benefit on a larger scale from which the entire economy can gain benefits (Boja, 2011). Martin & Sunley (2002) in their article has discussed the cluster model of Michael Porter. From this article, it is observed that the model is one of the most influential models because of its results. The advantages of the cluster model help the business in several ways as the implementation of the model can bring innovation, growth and competitiveness in the organization. It is a very useful model, and every organization must implement it in order to gain competitive advantage from this model (Martin & Sunley, 2002). The model is not only limited to the business sector or for particular organizations, but this model can be used in several government departments as this model provides larger outcomes and gives greater benefits to the society as well. The model is very helpful in policy making has the management department of all the sectors that are a part of the society can use this theory for policy-making and bringing beneficial changes in the organization (Huggins & Izushi, 2002). There are some implications in the cluster model of Michael Porter as this model is very complicated and can be implemented in a wrong manner and will result in no changes to the business. It is necessary for the organizations to implement the cluster model properly so that business, as well as the society, can gain benefits from it (Park et al., 2012). Conclusion The Porter Cluster Model is very important for the economic and industrial development of the state, region. The model helps to develop effective production capabilities to the companies, provides the innovation and growth to the overall industry and the economy as a whole. The model also helps the government to be competitive and also contributes to the research and development of the products and overall departments. List of References Boja, C., 2011. Clusters Models, Factors and Characteristics. International Journal of Economic Practices and Theories, 1(1), pp.34-43. Held, D. & McGrew, A., 2007. Globalization/Anti-Globalization: Beyond the Great Divide. illustrated, reprint, revised ed. Cambridge: Polity. Huggins, R. & Izushi, H., 2002. Competition, Competitive Advantage, and Clusters: The Ideas of Michael Porter. Oxford: Oxford University Press. Karlsson, C., 2010. Handbook of Research on Cluster Theory. Cheltenham: Edward Elgar Publishing. Martin, R. & Sunley, P., 2002. Deconstructing clusters: chaotic concept or policy panacea? Journal of Economic Geography, 3(1), pp.5-35. Park, Bae-Gyoon, Hill, R.C. & Saito, A., 2012. Locating Neoliberalism in East Asia: Neoliberalizing Spaces in Developmental States. Hoboken: John Wiley & Sons. Park, B.-G., Park, H.R.C. & Saito, A., 2012. Locating Neoliberalism in East Asia: Neoliberalizing Spaces in Developmental States. Hoboken: John Wiley & Sons. Traill, B. & Pitts, E., 1998. Competitiveness Food Industry. New York: Springer Science & Business Media. Read More