Determinant Diamond

Determinant, this paper will concentrate on the first component of structure and deal briefly with the other. Porter argues that vigorous domestic rivalry is strongly associated with competitive advantage in an industry and that success does not grow from one or two firms experiencing economies of scale due to their dominance of the market - only in a closed economy will dominance be profitable. He goes on to say that domestic rivalry creates pressure to innovate and upgrade NCA as local competitors imitate new ideas and the whole industry benefits from overall industry innovation.However in the very open Irish economy the subsidiaries of the MNC's are highly successful while dominating certain industrial sectors. They do so in the technologically sophisticated industrial activities where no significant rivalry exists and where indigenous firms are far too weak to compete. Their dominance is aided by the structure of indigenous industry which is predominantly small autonomous manufacturing companies. Nearly 65% of the private industrial sector is concentrated in enterprises of less than 100 employees and little co-operation takes place between them.(IDA) However, apart from these structural barriers which make the competitive environment prohibitive there are other disincentives for Irish firms to imitate MNC activities and compete in these sectors. Foreign subsidiaries have the backing of their large parent corporations who benefit from significant learning and scale advantages, advanced and specialised factors and a stock of financial resources for investment in the same.Imitation of ideas is also constrained not only by the above, but also by the absence of a concerted attempt by the government to gain access to the technologies these companies develop and utilise in order to diffuse it to their indigenous counterparts. The Irish 'hands off' policy stands in stark contrast to the polices of other countries, in particular, the rapidly growing East Asian nations. In these countries the governments have set up agencies in order to learn about the technologies which MNC's bring with them in order to integrate them into indigenous industry.Porter also states that new business formation will create new competitors and "feed the process of innovation"(Porter 1990). But new business formation is not a significant threat to competition in the Irish case. In a recent report by Forbairt it was found that over 60% of new businesses will fail within 5 years and each year about 600 companies are officially liquidated - this despite the favourable economic climate and the generous grant aid available(IDA). Data complied by the Department of Enterprise and Employment indicated that 57% of Irish companies fail while only 43% of foreign companies failed. If this trend continues foreign companies will continue to dominate.Therefore, Ireland appears to have a competitive advantage in industries in which there is no vigorous domestic rivalry and where success has grown out of a small number of firms experiencing economies of scale due to their dominance, despite the openness of the Irish economy. There are no domestic pressures to innovate as local competitors are constrained in their ability to imitate ideas. Overall this determinant is inapplicable to the Irish economy based on the trade statistics.Porter also states that countries will succeed where the goal and motivation fit the source of competitive advantage and that these goals are strongly determined by ownership structure. The goals of MNC's are evident from their financial behaviour and they have spin-off effects on the national prestige of their industries - thus affecting the quality of human resources (HR) attracted to them. If MNCs are perceived as using predominantly low skilled labour with little investment in the skills of the domestic labour force then the young educated segment will look elsewhere for employment. Thus Ireland's advanced specialised factors become mobile and emigrate to where investment in human resources is fundamental to organisations. This problem is compounded by the historically low HR investment levels of the indigenous sector and the significant "skill gap between Irish and best practice companies"(Culliton) Therefore, even if the young possess the skills there is no incentive to stay in the country as there are no benefits to be reaped in the long term and opportunities are limited. In contrast, one of Japan's key sources of NCA is its high percentage of engineers per capita. This mobile advanced factor is made immobile because of the Japanese engineering and innovative culture which creates the incentive to stay