Firms become multinationals for a number of reasons. A desire to protect themselves from the risks and doubts of the domestic business cycle, a growing world market for their goods or services, a response to increased foreign competition, a desire to reduce costs, a desire to overcome tariff barriers, a desire to take advantage of technological expertise by manufacturing goods directly rather than allowing others to do it under a license agreement. Multinational enterprises are different from companies that lock up their activities to the domestic market. MNEs make decisions based primarily on what is best for the company, even if this means transferring funds or jobs to other countries.
The success of multinational company is in seeking of new and relevant resources in addition of latest technology and in lights of competencies and a good understanding of how to lead the market. The complexity of how to learn the process of leading the market, building new resources is no longer a dream if porter's national competitive advantage theory is closely considered by the top management, which I will further explain in my essay. MNE's are undergoing through different challenges in international market, which forces the companies to change their strategies on a regular basis. Some companies which are unable to keep up to the market are facing problems in this age of competition and recession.
Increasingly, corporate strategies have to be seen in a global context. Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may convince the domestic market.
Michael Porter has introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are in his book. This model of determining factors of national advantage has turn out to be Porters Diamond. The model suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to reach advantage on a global scale. This model provides basic factors, which support organizations from building advantages in global competition. Porter drops down the four determinants are as follows:
http://www.themanager.org/models/Diamond-Dateien/image002.gif
The factor conditions in a country regarding production factors, like experienced labor, infrastructure, etc., which are appropriate for competition in particular industries. The factors can grouped into human resource like qualification level, cost of labor or material resources like natural resources, vegetation or knowledge resources, capital resources and infra-structure. Each country has its own particular set of factor conditions. Home demand conditions have impact on the pace and direction of innovation and product development. According to Porter, home demand is determined by three major characteristics: the mix of customer's needs and wants, their scope and growth rate, and their domestic preferences to foreign markets. He states that a country can attain national advantages in an industry or market segment, if home demand provides clearer and past signals of demand trends to home suppliers than to foreign competitors. In related and supporting industries one internationally successful industry may lead to advantage. An example is the shoe and leather industry in Italy. Italy is not only successful with shoes and leather, but with related products and services such as leather working machinery, design, etc. Cultural aspects play an important role in firm strategy. In different nations, factors like management structures or interactions between companies are shaped differently. This will give advantages and disadvantages for particular industries. Family-business based industries that are subject by owner-managers will behave differently than publicly companies. Porter argues that domestic rivalry within a state can help provide organizations for achieve advantage on a more global scale.
The determinants of national competitive advantage as explained by porter can help in maintaining the competitive advantage nationally and internationally. Firm strategy structure and rivalry factor in porter's theory helps in setting high goals for the company, keeping in mind first national and international competition. Its also force a top management to make a strong strategy in terms of product and services in order to maintain competitive advantage. Firm strategy structure is highly influence by the local competitors so top management has to take decisions which helps them to lead the local market and enhance towards international arena. E.g japan has nine major competitors in automobile industry which provides competition in domestic and foreign markets at the same time.
The second concerning factor of porter's theory is demand conditions which are all about innovation and quality improvement. The influence is on domestic market stimulations which forces the firm from startup to expand into a bigger organization, a good example can be Germany's automobile market such as Mercedes , BMW, and Porsche which are dominating the international market in terms of high performance.
The presence of related and supportive industries is critical yet crucial for the growth of any industry. The more related industries present in the domestic market, the higher will be the competition and quality concerns among the industries and so international competition will also increase.
Factor conditions as explained by porter can be categorized as home grown and highly specialized resources. Home grown resources are the ones which are locally or specifically available to a particular industry and hence are more reliable. A good example of homegrown resources can be given Hollywood actors which provide their skills to the local industry and with the vast options to be known internationally. The second condition is highly specialize resources such as raw materials are the concerns for any industry to compete locally or internationally.
