Factors for national competitive advantage in Kuwait
Discuss about the Business Level Strategy and Generic Strategies.
According to Michael Porter (1990), a country’s prosperity is created and not inherited. That is to say, a nation’s success does not grow out of its natural resources, currency value, interest rates, or even its labor pool as traditional economists suggest. Instead, Porter (1990) argues that a country’s competitiveness relies on the capacity of its companies to improve and innovate. In a world where the global competition is continuously increasing, the source of competition has shifted to the conception and incorporation of ideas. Thus, countries thrive in specific industries because their home environment is the most dynamic and forward looking. Thus, Porter developed the Diamond framework to explain the determinants of national competitive advantage. According to the Porter’s Diamond model, these determinants include demand conditions, firm strategy, structure and rivalry, related and supporting industries, and factor endowment conditions (Porter 1990). Thus, Kuwait can take advantage of these factors to create policies that helps in the development of national competitive advantage that will attract multinational corporations into the country and protect domestic firms from competition at the same time.
According to Porter’s model the determinants of national competitive advantage in Kuwait include:
By and large, Firm Strategy, Structure and Rivalry refers to the fundamental fact that competition causes countries and firms to develop means to increase their production and increase technological innovations. Therefore, the conditions that govern how companies are formed, organized and managed plays a significant role in determining whether firms in the country will be able to attain competitive advantage over firms from other nations. Therefore, having this factor in mind, the government of Kuwait can initiate policies that will work towards the development of competitive advantage for its local firms based on this factor.
Until 2001, article (23) and (24) of the Kuwaiti Commercial Code dictated that any foreign firms seeking to set up firms in the country must have a Kuwaiti partner with a share of more than 51 percent in the company (“Kuwait-Foreign Investment,” 2017). As a result, foreign companies could not easily set up their operations in the country, thereby limiting the number of MNCs developed in the country. However, the revision of this article in 2001 allowed foreign ownership of up to 100 percent of business entities in certain sectors (“Doing Business,” n.d.). In turn, this policy revision brought about an increase in foreign direct investment into the country (“Introduction on doing,” n.d.). What is more, it increased the rate at which multinational corporations set up in the country. Therefore, with respect to firm strategy and structure, the Kuwait government has initiated business friendly policies that encourage the establishment and development of MNCs within the country, thereby increasing foreign direct investment into the country and enhancing its competitive advantage in the global arena.
Firm Strategy, Structure and Rivalry
Primarily, the demand conditions of a nation refer to the nature and size of the customer base for goods and services within the country. Noteworthy, the nature of demand within a country drives companies to invest in product innovation and improvement in order to meet the needs of the consumers. Therefore, the more demanding the consumers are within the market; the higher the pressure companies face to continually progress their competitiveness through innovation and production of high quality goods and services. Therefore, for the Kuwait government to improve the competitive advantage of local firms in the country, it must set up policies that enhance and increase the demand conditions within the nation.
Particularly, the government may set up demand side policies to improve the demand conditions in the country and enhance competitiveness of firms. For instance, the government may set up a standard subsidy for a good or service in the country in order to increase the demand for the product and encourage firms to increase their productivity through innovation and competitiveness. In addition, the Kuwait government may utilize expansionary monetary policies such as lowering interest rates in the country to reduce the cost of borrowing and enhance investment and consumer spending (Pettinger, 2017). A low interest rate regime within the country implies that consumers can easily borrow money and spend it on purchasing goods and services within the economy. In turn, this raises the aggregate demand and forces firms to be competitive and innovative, thereby enhancing the overall competitive advantage of the nation. Besides, a high demand within the local economy will attract the establishment of MNCs within the country.
By and large, this factor refers to the existence of upstream and downstream industries within the nation that facilitate innovation through the exchange of ideas. This factor also refers to the presence or absence of supplier industries and related industries that are internationally competitive Supporting industries create advantages in downstream sectors as they produce inputs that are widely used and important to internalization and innovation (Potter, 1990). Noteworthy, supporting industries play a significant role in promoting foreign direct investment. Therefore, the Kuwait government can set up policies that encourage the establishment of supporting and related industries. Such a policy may comprise Local Content Regulations that force foreign makers who monopolize the local market to transfer their manufacturing technology requirements to local companies and suppliers. In turn, this will encourage the establishment of supporting and related industries in the country.
Demand Conditions
According to Porter (1990) factor conditions are those elements that a nation’s economy can create for itself. Basically, this includes a large pool of skilled labor, technological innovation, capital and infrastructure. Thus, the government can play a significant role in improving the country’s factor conditions by setting up policies that challenge and encourage businesses to focus on creation of value (Porter, 1990). Particularly, the Kuwait government can accomplish this goal by setting up anti-trust laws that stimulate competition between domestic companies and, therefore, enhance their competitive advantage in the global arena (Porter, 1990). Furthermore, such policies will protect local companies while at the same time encourage the establishment of MNCs within the country.
The ever changing business conditions in the global market necessitates that companies operate in an effective and efficient manner. Therefore, it is important for companies in Kuwait to adopt strategies that will enhance their capacity as well as help to create more employment opportunities. Mainly, a form can adopt strategies such as outsourcing, using innovative technology to improve their capacity, creating strategic alliances and subcontracting among others.
It is worth pointing out that technological advancements can significantly improve a company’s performance and help in increasing its capacity. For instance, web-based technologies can help a firm dramatically improve efficiency, achieve cost reductions and increase its market shares. Firms in Kuwait can adopt E-purchasing and online buying. Through this technology, the firm can easily get materials from its suppliers. Predominantly, this technology helps the business gain a competitive pricing schedule as it is no longer limited to local merchants. Furthermore, the firm is able to reduce transaction processing costs and there is less paperwork. Consequently, this leads to the improvement of firm efficiency and profitability, allowing it to expand its capacity and employ more workers.
Firms in Kuwait can also adopt outsourcing as a strategy to improve its capacity. Primarily, outsourcing is cost-effective as it allows the firm to focus its efforts on the core activities of the business in order to make more productive gains (Nordmeyer, 2017). The company may choose to outsource payroll, public relations, IT, or even accounting, depending on the factors that drive its costs and profits (“4 Strategies,” n.d.). Therefore, by outsourcing non-core functions, the firm is able to concentrate on the core functions of business to increase revenues and enhance productivity. In turn, this improves the capacity of the firm and increases profitability which may then allow for the expansion of the business and create employment opportunities.
A Kuwait-based firm may also adopt strategic alliances as a means to grow the company and improve its capacity. As such, strategic alliances allow businesses to expand their operations without necessarily incurring additional costs. The strategy allows a firm to improve its production processes by increasing the economies of scale and expanding its market (“Working Smarter,” n.d.). Furthermore, such alliances can help the firm negotiate better supply deals and share costs of advertising, among others. Consequently, this improves the capacity of the business and permits it to expand its work force by employing more workers.
It is important for every firm to acknowledge the fact that improving productivity and enhancing capacity is an ongoing and continuous process. Therefore, the firm must develop a continuous improvement plan to ensure it is competitive in the market. Mainly, this can be done by analyzing rival firms and adopting the best practices in the industry through benchmarking and developing the best plans for the company (Desai, 2017). It also involves identifying the company’s strengths and weaknesses to give an objective viewpoint that can help to improve productivity. A successful implementation of this strategy will help the firm improve its capacity and, hence, create more employment opportunities.
Reference List
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