Ways To Attract And Retain Foreign Direct Investment Using Diamond Of National Advantage Framework

Diamond of National Advantage Framework

The major objective of this paper is to make an evaluation of the “Diamond of national Advantage” and discuss the country can attract and retain Foreign Direct Investment. In this case, the flow of foreign direct investments is not only driven by the country capital of the host country but also, various ways of understanding on how to uses and access markets so as to earn profits. Further, Foreign Direct investment helps in solving various national problems by; providing capital used in enhancing economic development and growth (Porter 2011).

Further, Foreign Direct Investment also helps in the transfer of knowledge and technological skills. Also, Foreign Direct Investment enables the country to gain access to different foreign markets. A country’s competitive market is majorly determined by its capacity of various industries to carry out upgrade and innovation. To note, most countries have gained their advantages over various worldwide competitors’ dues to challenge and pressure. Additionally, countries gain from having genuine domestic rivals, demanding home-based customers and continued local-based suppliers (Riasi 2015).

For the purpose of this paper, “diamond of National Advantage” will be applied to discuss various ways of attracting and retaining Foreign Direct Investment (Porter 2011). In this case, the “Diamond of National advantage” was created by “Professor Michael Peter” with an aim of explaining why given countries experience wide internationally competitive markets in various industrial sectors (Porter 2011). The framework involves major 6 national level elements that focus on the country’s competitive advantage. In this case, the most common factors include, supporting industries, firm rivalry, factors supporting and demand. Further, more two factors include chance and government. To note, most countries have applied the “Diamond of National Advantage” framework to concentrate on the development of their regional policies in the market entry and public sector strategies by multinational firm managers (Porter 2011).

The following “Diamond of National Advantage” factors by Porter can be used by the country to attract and retain Direct Foreign Investments; factor conditions; this involves the position of the country the production factors that is to say; infrastructure, labor and many other (Mulder 2016). In this case, such factors of production are important in ensuring competition in various industries.

To note, the factors are arranged according to human resources such as (commitments, the level of qualification and many others), material resources like (vegetation, space, and natural resources), financial and capital resources. In this case, the national factors always provide the country with a major competitive advantage that is subsequently considered. To note, every country has different factor conditions that it should develop in regards to its optimal conditions. Therefore the country is required to specialized factors that generate genuine competitive advantage. To note, specialized elements involve sustained and heavy investment which are not simple to be duplicated. Therefore, this helps the country to gain a competitive advantage over others hence attracting foreign investments. Also, the country gains the competitive advantage because of the uniqueness of its firms (Mulder 2016).

Factors Influencing Foreign Direct Investment

Demand conditions; in this case, if the customers in the country continuously demand the products in a given economy, more pressure is put on firms so that they can continuously improve their market competitiveness by using various innovative goods (Mulder 2016). This factor also involves various questions like, “what reasons are there for a successful market?”, “what is the nature of the market and what the market size is?” To note, the factor involves the various interaction of various transportation cost and “economies of scale” (Mulder 2016).

 According to Porter, he illustrates that a given state can be in the position to attain the home advantage in the market segment or industry in case, its national demand illustrates earlier and clearer demand trend signals to its domestic suppliers as compared to the foreign competitors. To note, domestic markets have a greater influence on the country’s ability to notice the needs of its customers as compared to the foreign markets. Therefore, the country can attract and retain foreign direct investment by focusing on focusing on the internal market and attract more foreign investors to supply the high demanding domestic customers (Mulder 2016).

Firm structure, strategy, and Rivalry; these elements are concerned about how a given organization is managed and organized, rivalry measurements and corporative objectives. Also, it aims at establishing the conditions that a given country depends on to determine where a given industry has to be established(Pradhan 2009). In this case, cultural norms play a significant task in this factor. In this case, counties, regions, and provinces always differ depending on differences in working morale, and interaction of different countries. In summary, the factor illustrates how a country’s companies are managed, formed and managed and also the type of internal rivalry (Pradhan 2009).

Supporting and relating industries; this involves or does not involve internationally competitive supporting and supplying industries. In this case, a given a successful international industry may create a greater impact in the success of another supporting or related industry. To note, competitive industries always internationalize and reinforce innovation in various industries at different stages in the country’s domestic system (Lean et al 2009). On the other hand, related industries are of great importance in the market competitive by coordinating various activities such as hardware and software. In this case, the country can attract Foreign Direct Investments by encouraging related industries that can force international investors to coordinate with different domestic firms that produce related products such as leather and shoes (Karimi et al 2009).

Factor Conditions

Therefore, the country’s government is required to put into place the “Diamond of National Advantage” factors so as to help in the home to develop a stronger international market hence attracting and retaining Foreign Domestic Investment (Porter 2011).In addition, the government can implement national advantages by simply focusing on the greater expectations from the performance of products, environmental or safety standards. In addition, the government can also encourage vertical coordination between buyers and suppliers on the domestic and global market (Lean et al 2009).

In this case, most of the governments value the importance of encouraging industries to innovate and upgrade so as to attain growth in the long run (Mallik2008). This is commonly evidenced in most countries that have simple options for the growth of the future by producing improved or new outputs. Therefore, the government is required to directly support industrial innovation and upgrade by either supporting them funding them to carry out research or encouraging the private industries to invest in various innovations and research by supporting the spread and use of technology and also supporting venture capital (Mallik 2008).Therefore, the government should adopt the following four policies to enhance the capacity of its industries to innovate and upgrade;

First, carrying out strategic immigration of skilled labor. In this case, the country is required to give chance different foreigners so as allow industries gain acquire new skills form various countries (Leipras& Stephan 2010). This allows the industries to reduce their cost for jobs, dealing recovery of the economy and also harming the worldwide innovation leadership and entrepreneurship. By allowing immigration of foreign labor, the country’s industries are in the position to upgrade their skills. This also helps the country to remove and also widen its industrial gap worldwide(Audretsch et al 2007).

Second, removing all the unnecessary laws, in this case, the government is supposed to always set various international standards that industries should follow to measure and test their Department. Further, the governments are required to advise industries to hire different consultants so as to acquire new skills in their production and hence upgrade. Also, some government laws are such ambiguous that industries find it difficult to understand whether that are not violating the set laws. In addition, most of the government laws threaten the industrial competition hence denying innovation and upgrade (Czarnitzki&Hottenrott2009).

Third, promoting the country’s economic growth, by the government encouraging economic growth, industries are encouraged to carry out innovation so as to increase their production capacity and quality of products. IN this case, the government is supposed to encourage industries to focus on improving their production capacity and quality by carrying out research in different international countries. By promoting economic growth, industries will be motivated to carry out innovation and upgrade (Coltman et al 2008).

Fourth, Encourage volunteer by the unemployed workers, by encouraging volunteer of unemployed workers, they become motivated and learn various industrial activities. According to research, “the longer the unemployment payments the longer the jobless stay jobless.” By reducing the rate of unemployment, workers gain more contacts, references, and skills that can best help them attain a good job. In addition, volunteering encourages innovation in industries as people are exposed to new tasks that they can help industries upgrade (Coltman et al 2008).

Conclusion

The country can attain Foreign Direct Investment in case foreign investors establish their businesses or acquire different assets such as companies in the foreign industry. To note, foreign direct investment is far different from the portfolio in that way that investors buy equities of companies in foreign countries. Therefore, the country should focus on the “Diamond Of nation Advantage” factors to attract and retain Foreign Direct Investment. 

References

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Coltman, T., Devinney, T,M., Midgley, D, F., Venaik, S. 2008. Formative versus reflective measurement model: Two applications of formative measurement. Journal of Business Research 61: 1250–62.

Czarnitzki, D., Hottenrott, H. 2009. Are local milieus the key to innovation performance? Journal of Regional Science 49(1): 81-112

Karimi, M.S and Z. Yusop. 2009. FDI and Economic Growth in Malaysia. Munich Personal RePEc

Lean, H. H., and Tan, B.W. 2010. Linkages between domestic investment, foreign direct investmentand economic growth in Malaysia. Journal of Economic Cooperation and Development, 32(4):

Lejpras, A., Stephan, A. 2010. Locational Conditions, Cooperation, and Innovativeness: Evidence from Research and Company Spin-Offs. The Annals of Regional Science (forthcoming)

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Riasi,A. 2015. Competitive advantages of shadow banking industry: An analysis using Porter diamond model. Business Management and Strategy, 6(2), 15-27.