Porter's Diamond Model: An Evaluation On Behalf Of Jalandhar Sports Cluster
Task: Provide a detailed elaboration of the porter’s diamond model by relying on the case study of selected industry.
The definition of porter's diamond model has been discussed in multifaceted ways by researchers all over the world. It was in the book "The competitive advantage of Nation" that Porter had introduced the porter's diamond model. The model was majorly designed to understand and analyze the factors behind the success of certain industries only in some specific countries when compared to the markets of other countries. It should be understood by the readers that it is various industries that display fierce competition between them rather than the common notion that it happens among the nations. It is the various factors that exist in the operational market of the industry, that provide it a cutting edge against its competitors. Majorly five factors were traced by Porter whose interaction has provided the industries with a competitive advcountered the problem of scarcity in raw material since its operation in Jalandhar. The transportation amnesties of the company are well occupied wantage. These factors were demand condition, other associated companies, and their structures, factor conditions, level of competition or rivalry, and strategy. It has been later discovered that the other two factors would provide a competitive advantage to the industry. They are the political stability and the presence of opportunity. It is to display the interaction between these factors that Porter had derived out the porter’s diamond model.
The instance of the Sports goods cluster situated at Jalandhar is taken into consideration to elaborate on the effective implication of Porter's diamond model.
Below are listed down the major objectives of the porter’s diamond model.
- Draft and imply some strategies which could provide the sports good cluster of Jalandhar with an increased competitive advantage against its competitors.
- Analyze the factors which are mentioned under the porter's diamond model so that the current situation of the sports goods cluster of Jalandhar could be ascertained in the current operational market.
An advanced effort is done in this report to elaborate on the principles and implications of porter's diamond model by relying on the case study of the sports goods cluster of Jalandhar. In the posterior section of this report, the augmentation of the operating cluster and various strategies to be adopted the due course for achieving it are also discussed.
The whole report is being segregated into three parts for the convenience of the student. The former section of this report is regarding the theoretic background of both the porter’s diamond model and the sports goods cluster of Jalandhar is elaborated. The present condition of the sports good cluster in the operating market could only be understood by the use of porter’s diamond model. Each factor mentioned in the model would be juxtaposed with the competitive advantage of the cluster so that the relevant recommendations to sustain the cutting edge against the competitors could be delivered. This study could be referred by other companies in India so that a better insight into the Indian market and other developing countries could be acquired.
Porter’s Diamond Model
Before drawing an analytical framework, the porter had referred to the studies of the nation to identify the causes behind the success of some industries in certain countries. The companies were not only performing better in the domestic market but were also posing strong competition for global companies. The model was also introduced to provide the people with an understanding of the roles a nation plays in the development of its economic environment, and various strategies followed in the organizations. The nations with developed stature were selected for the study by Porter to develop his diamond model. Majorly the data were referred from 10 developed nations, which were, Italy, Denmark, the United States, Japan, Denmark, the United Kingdom, Switzerland, and Sweden. A lot of case studies were taken from these developed nations by him and it has been observed that there were majorly five factors that affected the local environment in a very vivid manner. These factors are demand conditions, factor conditioning, supporting industries and their organizational structures, and the existence of rivalry towards it. It was being made clear by the porter that a nation could not achieve supremacy in all aspects of the international environment.
Let us discuss the various factors which are listed under the porter’s diamond model in a very effective way.
Factor Condition: It is one of the major factors which is required by the company to sustain in a particular environment. The factor conditions could be further segregated into five subdivisions which are Capital resources, Knowledge resources, Infrastructure Resources, Physical Resources, and Human Resources.
A cluster is considered to be competitive by measuring the availability of factors of manufacturing in itself. If the resources are available in the required amount in a cluster would ensure the efficient and smooth working of the industries. The factors which are required by the company to sustain its efficient working could be bifurcated into basic and advanced ones. Resources like the location, capital resources, national resources, labor availability, and access to the raw materials could be tagged under the classification of basic resources. The factors like the availability of the highly skilled human resources and the installation of most modern technologies could be classified under the advanced factors. To augment the ability of a particular cluster to compete, it is the advanced factors which should be focussed upon. It is these factors that would make the efficient operation of a cluster possible. The innovation only happens when the scenario of need or unavailability arises in a situation. The hostile situations like the extreme lack of human resources, dearth of raw materials, poor infrastructure, etc. would coerce the companies in utilizing the available resources by using various methodologies and designs. The commencement of innovative activities would increase the efficiency of the cluster.
Taking various clusters into consideration, it could be stated that every specific one of them has their strengths and weaknesses, though it is its efficiency in utilizing the available resources that determine its success.
Demand Conditions: It is the local domestic demand, trend, or the course of development, and the arrangement of the demand that would constitute to be the crucial factors of the demand condition. Instead of taking in consideration the demand in the distant market, the porter had envisaged his focus on the local market. A company has a higher tendency to react against the changes in the local operational market rather than the changes in the foreign market. The company could be encouraged to adopt new technology in its business process if its product meets with high demand in the local market. This factor would majorly depend on the awareness level of the customers and buying culture followed in a particular country. It is the demand and pressure from the customers which would coerce the organizations and clusters in conducting the research and development at a much faster rate. There is no need for augmentation in its products if the company is not facing any pressure from the customers and keep on supplying the same type of product and services.
The factors entailed in the demand condition would inflict the efficiency of the cluster since most of the companies would start to generate counterfeit inferior quality products to meet the increasing demand among the customers. It is the customers with customized and high-end demands which force the company to derive out the innovative products to satiate the new demands. It has been observed that it is the local market that poses the company with complex hindrances and thus paves the way for its up-gradation. In the global platform, the parameter of quality has the highest priority rather than its amount of production. Since the qualitative aspects have a higher preference than the quantitative aspect, the manipulation with the quality or the characteristics of the product is hardly possible on the global platform.
Related and supporting Industries: The factor of supporting industries is being taken into account in the third determinant of the porter’s diamond model. If there is an adequate magnitude of suppliers present in a cluster would increase the rate of innovation. The level of business would increase proportionally to the level of suppliers available in the cluster. If the industry is being well supported by the associated industries, the hidden opportunities could be traced by them very effortlessly.
Firm Strategy, Structure, and Rivalry: It is by taking into account this factor that the system of a firm is being shaped into a particular manner. All the factors in the business processes are organized as per the strategy and the ideology accepted by the company. There is not a single managerial approach that could be considered a panacea to pace through the course of success. It is based on the separate conditions existing in each country that would determine which style of management is better for the business of the company. It has been elucidated by the porter in a very crystal-clear manner that the level of competition in a market or cluster would affect the efficiency and competitiveness of the cluster. Since the high level of competition in the system would create hostility for the organizations, it would lead it towards the quest for sustainable improvement. It is after the study of engagement and behavior of the competitors towards the market that the company should draft the strategy for its business. There is a high probability of imitating the ideal products in the cluster if there exists a very high magnitude of competition. The suspicion among the organizations would increase if there is a high presence of competition in the selected cluster. The management team would be envisaged in deriving out some strategy to find a cutting edge against its customers. The whole process would augment the efficiency of most of the organization operating in the cluster.
Chance: The factors which are actually out of the control of organizations are generally categorized as the chance events. Such uncontrollable and involuntary events have the potential to change or amend even the system or the format of the organization. This could even increase the competitive ability of the company. Through events like war and natural disasters that have very detrimental consequences, it sometimes turns out to be profitable for other nations and organizations. Controlling these factors is very hard for the companies and sometimes even the government of the nation is unable to control the situation.
Government: Though it is the final factor, it is not the least one. The policies made by the government have a very great impact on the business of a company. If the policies of the government are hostile towards the traders, the chance of development for the clusters is very rare. It is by only the presence of a responsive government that the amnesties for a business could be made available for the company. The clusters should be installed with a sustainable array of the internationally competitive industry by the government of the nation so that sustainable development should be attained in the system. If there is sufficient help or support from the government, the industries situated in the cluster could perform to a very better level. For the better progress of the local economy, the government should draft out various policies that could help various industries to increase the magnitude of their business. The government could majorly ask the companies to make some changes in their audit, business processes, attitude towards the customers, etc.
It is these particular factors present in some of the clusters which could make a favorable environment for some of the peculiar industries and makes their sustenance possible in some companies.
Considering the case of Sports goods cluster of Jalandhar
If taken the history of the organization, it could be traced back to the place of Sialkot in Pakistan soil. It was one of the divisions of this organization that moved to the Indian solid after the partition. The employees who had sustained allegiance with the shareholders who moved to the Indian soil had also followed their path. In the initial period of their migration, the government had settled them in Batala. It was after decades that they were resettled to Jalandhar. This move done on behalf of the local government since the raw materials for the company were much available in Jalandhar. A small section of the company has also shifted itself to Meerut to utilize the benefit from cheap raw materials. In the coming years, the company has performed very well and transformed the cities of Meerut and Jalandhar the major sports hubs. As compared to Jalandhar, the city of Meerut still needs to get developed as a major sports hub.
Discussion: As mentioned earlier in the former section of this report on the sports goods cluster of Jalandhar, the major aim is to provide the readers with a better overview of the porter’s diamond model.
The major factors which could be considered under the porter’s diamond model could be classified into five types. Let us have a detailed look at it.
Human Resources: Unlike other modern companies which are now moving towards the automated mode of manufacturing, the production process of the company still implies the labor-intensive methods. In the current scenario, the company retains the human resource with the magnitude of around 5000 employees who are highly skilled in their profession. In estimating the size of the human resources, only those who are registered with the organization on a permanent basis are taken into consideration. Many of the employees of the company are working from theory own house and they are not taken into consideration in this context. If such workers could also be taken into consideration, the volume of the human resources of the company could be estimated up to 10000 employees.
It has been observed that the organization in the same cluster has the trend of just providing 10 workers with employment. The companies follow this trend to avoid the regulations entailed in The Factories Act of 1947. Since the company has to meet the sales and the revenue on a seasonal basis, it would not be financially feasible to sustain the employees throughout the financial year. It is according to the demand faced by the company that the workers are being employed. It is the presence of crucial subcontractors who would provide the company with human resources when in demand.
Physical Resources: The geographical situation of the Jalandhar is very beneficial for the company since it has high proximity to the woods available at the foot of Himalayas. Most of the products for the sports goods cluster of Jalandhar requires a substantial amount of wood for its products. The forest also provides the company with a regular supply of leather. The existence of the company at the place of Jalandhar provides the company with the advantage of getting a sustainable supply of both wood and leather.
Knowledge Resources: The cluster in which the company is operating lacks the essential knowledge for the business. There is not much awareness or many training programs conducted to attain a higher level of skills. Since the management still relies on the archaic and obsolete ideology that the workers possess the inherent skills for a certain profession and there is no need to polish or refurbish it. Because of this, the companies operating in the cluster have not even bothered to organize a training institute. Though there has been some effort to make some awareness among the employees about the common goal, it has limited only to the officers placed in the higher places of the hierarchy.
Capital Resources: The specific cluster in which the sports goods cluster of Jalandhar is operating is very self-reliant and hence depends on only its funds. This makes it clear that the firms operating in the cluster are not facing many challenges or problems in their own business. Though the rate of interest is much higher in the cluster by the lenders and bankers, it is the lower level of fixed capital that is contributing to the financial stability of the cluster as a whole. The sports goods cluster of Jalandhar still relies on the skill-based human resources, a high magnitude of finance is not required for it. This because the company would rely on its financial resources for its sustenance in the cluster.
Infrastructure: If considered the geographical situation of Jalandhar, it is well installed with required road and rail connectivity. This feature would help the company in transporting its raw materials and the products to the other states and clusters. The process of import and export is also possible because of the proximity to the international airport of Amritsar which is only 60-kilo meters far.
Demand Conditions: It is to determine the competitive advantage retained by the sports goods cluster of Jalandhar that the factor of demand condition is taken into consideration. The customer base or the market of the company could be bifurcated into domestic and international markets. If the domestic scene for the company is considered, then the majority of the demand arises from the departments of government, educational institutions, and other local customers. Though the major magnitude of the company's revenue is from the process of exporting its finished products. The major foreign consumers are the government department of foreign nations like the USA, the U.K, Germany, South Africa, France, etc.
Auxiliary or Supporting Industries: The cluster in which the sports goods cluster of Jalandhar operates is not a large one and consists of some minor small enterprises. Even the organization of medium magnitude is very hard to find in the cluster. Though it is also a noteworthy fact the most of the organizations are pretty old and its inception could be dated back to the time of independence. It is the succeeding generation that is continuing the business that their forefathers have pursued. Some new organizations in the cluster have accepted a different mode of operation than their traditional counterparts. The places like the Basti Sheikh could be considered the core supplier of the raw materials in the cluster. The lack of interaction between the suppliers and the organization could be perceived, which is hampering the research and development processes of the company. The whole approach in the cluster has designed the organization to just focus on the aggregate sales of its finished products.
Firm Strategy, Structure, and Rivalry: As mentioned earlier in this report on porter’s diamond model, the sports goods cluster of Jalandhar only consists of small enterprises. In conducting the survey, no medium scale industries were found in the cluster. Most of them have been established around the period of India’s independence. The same profession is being pursued throughout three generations in the cluster. The cluster is getting vast and the workers who have migrated from other places are also assimilated into the process of manufacturing. The entrepreneurs who have just emerged are now having a different approach, mode of operation, and outlook towards the same business and are far different from their predecessors. The cluster provides very little opportunity for the migrants since most of the units are being occupied by the families and some of them under sole proprietorship. Only the members from the family or the friends are allowed to enter into the process. Though there is a positive aspect for it that the owners could take very independent decisions without fearing for the bitter repercussions in this scenario.
The presence of similar industries in the small cluster is making the level of competition very fierce. The level of competition would make it very hard for a new company to sustain itself in the cluster. The need for a better strategy is always there among the companies and thus al the activities of the competitors must be checked by the competitors.
There have been many policies and actions taken by both the state government and the central government to help the sports goods cluster of Jalandhar and the employees working in it. The major act was to increase the export of the products manufactured in the sports goods cluster of Jalandhar. The lion size of the profit made in this business is through the export process and hence the policies regarding it by the governing bodies could affect in large magnitude. There are very few interventions made by the government in the domestic market. There are some minor incentives allowed for the workers and the small-scale industries in the same cluster. The level of satisfaction among the employees is also very different. Most of the profit is being reaped by the people who are engaged in the process of export and only a marginal revenue is being distributed among the workers at a lower level. There is a strong resent among the lower-class workers against the government. It is being a decade that the government had many changes in the policy of the domestic market and the conditions are getting much worse.
It has also been opined by the workers that though the government is delivering a lot of circulars regarding the industry, only a few of them are being implied by the authorities. The major example of this is the allowance of 1 % subsidy for freights from behalf of the State government of Punjab. Though the reality is that the subsidy was never being implied by the local government. The government should ensure that the decisions should be implied on a regular basis so that the development of the cluster could be ensured.
The condition and the environment in which the sports goods cluster of Jalandhar was always favorable for its growth. The geographical situation of the company has always provided access to the woods of Himalaya. The company has rarely encountered the problem of scarcity in raw material since its operation in Jalandhar. The transportation amnesties of the company are well occupied with the better-quality rails and roads which ensures the timely delivery of raw materials and the finished goods.
For a better understanding of the analysis of the porter's diamond model from the behalf of the sports goods cluster of Jalandhar, please consider the pictorial representation provided in the below section of this report.
Human resource department
The major challenge that the sports goods cluster of Jalandhar is facing in the current scenario is the deficiency of skilled and experienced workers. This situation has arrived in the cluster because the companies had given zero focus on the training and awareness programs. The market is being introduced with the most modern technologies because of new scientific advents, and hence the cluster requires the human resources which have the ability to operate these advanced pieces of machinery. The productivity of the units situated in the sports goods cluster of Jalandhar is very less if compared to those of the global parameter. It is the government that should take some actions regarding the training process of the company, otherwise, the whole sports goods cluster of Jalandhar would get sabotaged because of the obsolete methodology of manufacturing. It is the cost of training which are prohibiting the manufacturing units from indulging in the process of human resource training. The lack of foresightedness is plunging down the efficiency and competency level of the manufacturing units. The cluster could suffice the demand of the specially skilled employees only by the intervention made from behalf of the government.
Promotion of Domestic Products
It is highly recommended that government agencies like the Central Government, State government, Sports Authority of India, BCCI, etc. should prefer the products manufactured from the sports goods cluster of Jalandhar so that the goodwill and awareness towards could be increased among the local customer base. India in itself is a large consumer base for the consumption of sports utility products. It should be mandatory for all the sports events conducted in the soil of India that the products provided by the sports goods cluster of Jalandhar should be used.
Advancements required from behalf of the government
The major problem prevailing in the sports goods cluster of Jalandhar is that most of the participants are not aware of the interventions and the policies introduced by the government, especially from the sports ministry. The government should work in harmony with the suppliers of Business Development Service, industry associations, etc. so that the relevant information could be provided in the cluster. The government could also make use of some workshops or seminars so that the information regarding each policy drafted by the government could be made familiar to the popular mass and the organizations. The maximum benefit of the policies could only be reaped if the organizations are pretty well aware of it. The government officials and executives should implement the decisions on a timely basis, otherwise the whole effort of drafting the strategies and policies would go in vain. To understand the actual impact of the policies drafted by the government, the feedback and comments should be collected from the manufacturing units in the clusters. If the policies have just given below-par outcome to the companies, then the government should draft a policy by taking into account the feedbacks and recommendations of the entrepreneurs. If the government department would take charge of all the responsibilities for the timely implementation of the government policies, most of the problems existing in the cluster could be resolved.
The facility that the government could provide the companies in the setting up of an information center which should work under the department of Cluster Development Programme. By this, the latest information which pertains to the field of technology could be circulated among the units of clusters. The awareness could be made possible only if each of the companies are provided with the relevant information.
If taken the global scenario, a lot of seminars and trade fairs are being arranged for increasing the awareness of the companies. The bodies like the Sports Goods Export Promotion Council are working for the same cause by encouraging the exporters to take part in the sports fairs arranged by themselves. Though it is a partial solution since only the registered members are allowed to participate in it. It is the responsibility of the government to make some amendments and helps the smaller entrepreneurs so that their participation could also be ensured in this platform.
It is the equipment that is being certified or authorized by the international federation that is allowed to be used in international tournaments. The major hindrance before the small enterprises are not the factor of quality but the humungous fee they have to submit for the certification. If the government of the respective clusters would help the companies, they would be able to collect more revenue by acquiring the certification of international federations.
Positioning some Special Economic Zone
More focus could be given on the sports goods cluster of Jalandhar if the geographical place could be acknowledged as the Special Economic Zone. The rate of export would increase and it was discussed in the previous section of this report that any change in the level of export would dynamically affect the revenue of the associated companies. The move could attract a lot of investment from the global platform and could cause an economic boom in the local Indian markets. The sports goods cluster of Jalandhar requires some major technical assimilations so that the faster and efficient level of production could be attained by the company. The access of the infrastructure should be augmented by the government so that the foreign traders should perceive it safe to invest in the clusters of India.
The relevance of the research wing and business development sections
The specialty of the business development wing is that they could be employed with the specialists who could provide the required personnel with authentic suggestions and help. It is the data acquired from the international market and the current local market that should be analyzed and referred for a conclusion by the business development cell. The functioning of the cell could be financed from the contributions of the Cluster development Program launched by the Government of India and the Department of the Industries.
The help of various universities could be utilized for the development of the cluster. The inclusion of the academic universities would ample the quality of research conducted on the units of manufacture in the sports goods cluster of Jalandhar. The special hep regarding the research process could be availed from the Department of Industries which comes under the control of the Government of Punjab. It is their job to provide better assistance by assisting in the research process in the cluster.
In this report on the porter’s diamond model, we have taken into consideration the factors affecting the sports goods cluster of Jalandhar for clearly portraying the implementation. It has been observed by the analysis conducted under this report that the sports goods cluster of Jalandhar is depended on the factors mentioned under the porter’s diamond model. The major dependable factors were found to be the level of skilled labor availability and access to raw materials. The cluster has evidenced dynamic progress over time since it retained very sophisticated and aware customers along with the suppliers who possessed efficient, pieces of machinery. The high level of competition in the cluster also contributed heavily to its financial development. The factors mentioned under the porter’s diamond model needs to be focussed upon seriously to augment the efficiency of itself. It is being highly recommended in this report that the government agencies should implement all the policies on a very timely basis, the absence of which would bring a total failure of the cluster.