The Competitive Advantage of Singapore - Essay Example

Using Porter's Competitive advantage of Nations: Diamond factors, discuss the competitive advantage of singapore. use theories and examples to illustrate January, 2009 TABLE OF CONTENTS 0.00 Abstract 1.0Introduction 1.1 Porter's Competitive Advantage of Nations-Porter's Diamond 1.2 Singapore's Competitive Advantage in relations to Porter's Diamond 1.3 Conclusion Recommendations and the way forward Abstract This paper discusses and evaluates the competitive advantage of the Country Singapore using Porter's Competitive advantage and the Diamond factors. The paper starts by presenting and discussing the resources which include the operations and information technology that have laid the foundation to the current competitive position of the country Vis a Vis other countries. In this paper, we find out that because of its present competitive advantage, of lower production cost, good network infrastructures, a good international port with access to different parts of the world, ample investment, and well thought out operations and information technology have given the country a greater leap forward. We also find out in this study that, though the country has a natural small land area, the country capabilities and efficient and effective use of information technology has more than compensated for its present international position in the shipping and sea transportation industry. The country position and image has been further enhanced through electronic government that has transformed public services. 1.0Introduction This paper examined the competitive advantage of Singapore using Porters competitive advantage of nations. Porter tries to solve apparent puzzle of a country's competitive advantage, or why one country is more competitive than the other through the attributes of his competitive advantage of nations (Porter 1990).These constitute the essence of his notion of competitive advantage. Porter (1990) echoes an important question in which he provides a succinct answer. For example, "why does a nation achieve international success in a particular industry Porter argues that, the answer to this question lies in four broad attributes of a nation that shape the environments in which local firms compete and promote or impede the creation of competitive advantage." (1990:71). The first part of the paper examined Porter's competitive advantage of nation, the second part of the paper looks at this competitive advantage with respect to Singapore. The last part of the paper provides a brief finding conclusions and recommendations. 1.1 Porter's Competitive Advantage of Nation-Porter's Diamond Porter's essential task in his ground breaking tool was to explain why a nation would succeed in a particular industry and not in another. In the words of Porter (1990), "in global competition, firms from any nation can gain scale economies by selling worldwide" (Porter 1990:71). To the researcher, which nation's firms will do so Thus, to Porter, a range of new explanations for trade has been proposed. One is economies of scale which give the nation's firms that are able to capture them a cost advantage that allows them to export, but however this theory are fraud with gross weaknesses (Porter 1990). Porter in his ground breaking work of (1990) postulates that a nation's competitive advantage can be deduced from his four attributes of competitive advantage. These attributes include include (1) factor conditions, which he defines as: "The nation's position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry." (Porter 1990). The second attribute in Porter's competitive advantage of Nations is the demand conditions. Porter (1990) refers to this as the nature of home demand for industry's product or service. The third attributes of Porter's competitive advantage of nations focuses on related and supporting industries, which according to Porter (1990) refers as: "The presence or absence in the nation of supplier industries that are internationally competitive." Porter (1990) further echoes that, related industries are those where firms can share activities in the course of the value chain across industries (Porter 1990). These suppliers industries according to Porter include distribution channels, technology development or transfer proprietary skills from one industry to another. For example Porter uses three related industries e.g., cars, light trucks, and forklift trucks that can be effectively used to each other advantage (1990:782). In the fourth attributes of Porter's competitive advantage of nations, Porter argues that the existing business climate and condition in the country such as Firm strategy, structure, and rivalry. To Porter (1990) these create conditions in the country governing how companies are created, organized, managed, and dictate the nature of domestic rivalry (1990:71). According to Porter (1990), firms are most likely to succeed in industries or industry segments where the diamond is more favorable. According to Porter, the system of these four attributes is a mutually reinforcing one. In other words, to him, the effect of one attribute is quite dependent upon the state of other attributes (Porter 1990). 1.2 Singapore's Competitive Advantage in relations to Porter's Diamond In this section of the paper, we discuss and present Singapore competitive advantage inline with Porter's Diamond. As stated above, Porter (1990) argues that, the competitive advantage of a nation stems from any of the four legs of his proposed diamond. For example, the researcher argues that, attributes such as factors endowment are those factors most important to competitive advantage in most industries, especially the industries most vital to productivity growth in advanced economies, are not inherited but created, Porter went further and argues that were this factors are inherited it may undermine instead of enhance competitive advantage (Porter 1990). Instead, according to our researcher of the Diamond doctrine, where selective disadvantages exist in factors, and through influencing strategy and innovation, competitive advantage will be sustained. Porter echoes that, factors should not be grouped into very broad terms such as land, labor, and capital, but instead recommended that they should be grouped into a number of categories each possessing different types and levels (Porter 1990). In Singapore, it factors endowment attributes that have given the country a competitive advantage include: its diverse human resources and human capital, both cheap, semi skilled and skilled labour especially in the IT sector. Though, Singapore lacks any natural resources or endowment, the small size of the available land has been compensated by the sea transport that easily link the country to other part of the world. Its international Port terminal resulted from this. Its mix of infrastructure has also been used to the country's advantage. If Singapore is a strategic player today in the IT, sea transport, and manufacturing of labour intensive items it is thanks to this factors. Here, Porter in his Diamond model stipulate that, competitive advantage from factors depends on how efficiently and effectively they are deployed (Porter 1990). Singapore factor endowments can be broken down into basic and advanced factors endowment. For the basic factors endowment, I have identified its pool of cheap semi skilled labour; its available resources of water easing sea transport its attractive climate and good location that has served the country as an international hub for tourist attractions. Singapore advanced factors can be classified under, the sophistication of its IT industry, its modern digital data system, its modern and sophisticated infrastructure, a pool of highly educated personnel such as graduate engineers the presence of research centres and universities. (1990, p. 77). Chan (1990) observes that investment in human resource is of paramount importance to Singapore for the following reasons: Singapore's chief resource is its human resource, and the entire economy is dependent on the proper management and utilization of this resource. Chan (1990) argues that Singapore is a small export-based economy which depends on its efficient and effective utilization of input resources to produce goods and services (such as banking and tourism) that are competitive on the international market (Chan 1990). Because Singapore is devoid of any natural resources, Chan (1990) stated that, education becomes one of the means to prepare people for the labor market, that is, employment (Chan 1990, Andersen et al. 1981). Porter went further and state that, advantages accruing to a country as a result of basic factors are unsustainable (Porter 1990). This is why; Singapore had to reconsider its strategy in the means of growing influence of its neighbours. Porter, states that, today, the diminishing importance of basic factors is caused by their diminished necessity, their widening availability, or ready access to them by global firms. This has become evident in Singapore were neighboring countries such as China, Malaysia have tilted the balance in these basic factors to their advantage. Porter in his ground breaking work refers to the advanced factors as the key underpinning competitive advantage in Porters word, "they are necessary to achieve higher - order competitive advantages such as differentiated products and proprietary production technology,". Here Singapore's specialized Port terminal can be used as a good example to support the country's present competitive position in sea transport. Again this has created an international supply chain management company known as the YCH with main customers such as DELL, Nokia etc. The second leg of Porter's diamond is referred to as the Demand condition. This leg of Porter's Diamond addresses the gross negligence of the demand side of previous trade theories. In this leg, Porter, (1990), states that the second broad determinant of national competitive advantage in an industry is home demand conditions for the industry's product or service. Chan (1990) for example states that, if Singapore is strategic in consumer and IT market today, it is thanks to its domestic demand for these services that first of all created the local market, before searching for market for the sales of excesses. Porter (1990) classifies the demand factors condition attributes under the following subsets- nature of buyer needs, of home demand, the size and pattern of growth of home demand, and the mechanisms by which a nation's domestic preferences are transmitted to foreign markets (Porter 1990). Here, Porter assumes that, the composition of home demand gives local industry an insight of consumer's expectation to the detriment of foreign firms who failed to perceive these attributes (Porter 1990). In Singapore for example, its increasing consumers demand and changing quality and preferences have been the force behind, Singapore's domestic electronic appliances development (Chan 1990). These local demand patterns perceived to be sophisticated and more inspiring has marked the basis for Singapore's domestic firm's advancement in the electronic and IT sectors. Andrews (1997: p. 52) defines corporate strategy as "the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organisation it is or intends to be and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities". Corporate strategy in effect maps out the businesses in which an organisation intends to compete in a way that focuses resources to convert distinctive capabilities into competitive advantage. (Andrews, 1997, Schneider (1989). No wonder, Porter (1990) went further and argues that, countries gain competitive advantage in industry segments where the home demand gives local firms a clearer or earlier picture of buyer needs than foreign rivals can have (Porter 1990). Here, the sophistication of local demand can press local firms to innovate faster. Thus, pushing local firms at the forefront of innovation and technology advancement. In Singapore, because of pressure of local demands, companies like SINGTEL and JTC competititive position have been enhanced. In formulating corporate strategy, organisations need to identify and priorities strategic issues, which involves scanning, selecting, interpreting and validating information. (Schneider, 1989) In Singapore, most buyers for a products or services are mobile or are multinational firms. The Singapore airline industry for example is a good example of this. An advantage has been created for the nation's firms because the domestic buyers are also foreign buyers. For example the Singapore SINGTEL and JCT purchase part of their materials both domestically and internationally. Porter (1990), postulated that, another way in which domestic demand conditions can pull through foreign sales is when domestic needs and desires get transmitted to or inculcated in foreign buyers. One example is when foreigners come to a nation for training. Singapore is an international base for the training of maritime personnel. The third leg of Porter's Diamond focuses on the nature on related and supporting industry. To Porter, the presence of supplier's companies that are internationally competitive also determine a country's competitive position. In the Singapore economy today, the presence of internationally competitive supplier industries in Singapore has created advantages in downstream industries in several ways (Chan 1990). First, through efficient, early, rapid, and sometimes preferential access to the most cost-effective inputs. These include IT and other related information technology materials, materials for electronic home appliances etc. For example, Singapore is a world leader in IT international sea transport terminal because of the position of related suppliers industry in meeting the needs and current market demand. No wonder, Porter (1990) argues that, a nation's firms receive maximum benefit when their suppliers are themselves global competitors. (1990, p. 104). Porter refers to related industry as those in which firms can coordinate or share activities in the value chain when competing, or those which involve products that are complementary (such as computer and applications software). Today, computers are assembled in Singapore because of the existence of software companies and other related electronic companies. Through this, the company has been able to break through local market saturation, gain market potentials, and other financial gains. Like unique resources that when available to a company helps create a source of competitive advantage The country unique resources include its location, water resources rights, strategic locations in the world and the soft side of the country its pool of valuable employees and culture) are just some of the many resources the that has given Singapore its present competitive advantage in IT, Sea transport and electronic appliances. Through this, the country Singapore has experienced share activities in technology development, manufacturing, distribution, marketing, or services (Chan 1990). In the last but not the list leg of Porter's Diamond, Porter refers to the firm's structure, strategies and rivalry. Here Porter refers to the nature in which firms are created, controlled, organized and marged as well as the nature of domestic rivalry and the degree of fare competition in the market. In Singapore, 98% of public services are available online with twenty four hours access. All services deemed suitable for online access have been put on the country's one stop internet base. Businesses are able to transact with the government online and via e-procurement. The government has created an easy access of Government to Businesses interphase through this; businesses can apply for 69 different business licenses (Singapore 2008 Country Report). The government has thus created a fare business field were all businesses are equal. This has been further strengthened by the re-engineered internal government thought processes and work procedures. The country through this has been able to leverage IT efficiently and effectively. To serve , citizens foreigners and businesses. According to an independent analyst Report by Accenture (2005), Singapore ranks 1st in a 22 country study on IT diffusion. 1.3 Conclusions and the Way Forward In all, Porters Diamond and competitive advantage of nations help explain Singapore's competitive advantage in relation to other countries. These methods of analysis are useful but do not provide the complete story. Furthermore, neither approach can predict short or long term success. However; these methods should be complimented through information collected from questionnaires and interviews. Thus, there is a growing need for this study to be replicated using other data collection methods. References Andersen, Esben, Dalum, Bent, and Villunsen, Gert, 1981, International Specialization and the Home Market: An Empirical Analysis, Institute for Production, Aalborg Universitescenter, Denmark, Andrews K. (1997). Resources and Strategy: A Reader, edited by Nicolai J. Foss. Oxford University Press, ISBN 0198781792, 9780198781790 Brander, A.J., "Rationals for Strategic Trade and International Policy," in Krugman, P.R., 1986, Strategic Trade Policy and the New International Economics, Cambridge, Massachusetts, MIT Press. Chan, C. H. (1990). Industrial Strategy and Worker Training: A Singapore perspective. 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