Double Diamond Model Explained

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Table of Contents

The Double Diamond Model
India DDM
Government influence
International forces on competitiveness
Home country leading industry DM
Reference List

The Double Diamond Model

The Double Diamond Model evaluates four determinants of industry competitiveness at the domestic level as well as the global level. Double Diamond Model (DDM) integrates multinational activities and government influence onto Porter’s single Diamond model.

DDM also creates improvement by comparing the size and shape of the two diamonds. Porter’s Diamond Model is effective in analyzing the domestic industry competitiveness. On the other hand, DDM is helpful in analyzing both domestic and international industry competitiveness (Sardy & Fetscherin 2009).

The Diamond Model forms the inner part of the DDM. Porter’s Diamond Model uses four determinants to evaluate industry competitiveness. The factor conditions are the factors of production which form inputs in an industry.

Some of the factors of production include manpower and infrastructure. Flow of capital involves inbound and outbound cash flow. Skilled labor may be measured by adult literacy levels. The demand conditions refer to the level of information that customers have. An education index may be used to measure customer sophistication as a demand condition.

Business context refers to the nature of the domestic environment. Related and supporting industries are the level of technology in related industries. For example, information technology and road infrastructure are related to the automotive industry. A high level of knowledge in related industries may increase competitiveness and growth in the industry in focus (Sardy & Fetscherin 2009).

DDM evaluates the same factors as the Diamond Model but in the global market. It also incorporates government influence in creating competitive advantage. Government has an impact on the rate of change in the other four determinants. The shape and size of the two diamonds are compared to analyze industry competitiveness. The size of the domestic diamond varies within short periods of time. The global diamond changes only in the long run. The domestic diamond may change within a short period (Sardy & Fetscherin 2009).

India DDM

Considering factor conditions, India has lower wages compared to South Korea or China. India has a lower adult literacy rate (61%) compared to China (90.9%) or South Korea (98%). The capital flow in India is much lower than in Korea and China both for the inbound and outbound FDI. India low wage rates have made it more competitive for outsourcing of automobile components despite low literacy levels (Sardy & Fetscherin 2009).

India is less competitive using international demand conditions. Export volume and export growth rate are lower in India than in China. Its export growth rate is lower at 25.1% compared to China (54.6%) and higher than South Korea (0.6%). India is less competitive considering international demand conditions.

Consumer sophistication is lower in India than in China or South Korea. India has a lower GDP per capita than the other two countries. India automobile industry has lower international competitiveness as a result of its demand conditions (Sardy & Fetscherin 2009).

On related and supporting industries, India scores are lower on manufacturing industries that would support the development of the automotive industry. India has less development in the communication industry. As a result of less development in related and supporting industries, India has lower competitiveness using domestic related and supporting industries (Sardy & Fetscherin 2009).

In the business context, the three main firms in India control 90% of the market. It reduces rivalry among domestic firms which reduces international competitiveness. Its domestic rivalry is almost similar to South Korea where three firms dominate the market. India is less competitive using the international business context. Its tariffs are the highest (Sardy & Fetscherin 2009).

China DDM

Using the factors of production at the domestic level, China appears less competitive to India on wages. China is more competitive to India on R&D expenditure and less competitive to South Korea. China is more competitive to India on labor using adult literacy but less competitive to South Korea. However, using international factor conditions China is more competitive than either India or South Korea (Sardy & Fetscherin 2009).

China’s customer base consists of more informed consumers than those in India. The GDP per capita shows ability to purchase vehicles. It is much higher in China ($1,988) than in India ($71). The growth rate of the GDP per capita is also higher in China than India. Using GDP per capita China is more competitive than India but less competitive than South Korea. However, using the growth rate of export volume, China appears more competitive than South Korea and India (Sardy & Fetscherin 2009).

On related and supporting industries, China scores higher than India but lower than South Korea in the domestic Diamond. On the international Diamond, China scores higher than both India and South Korea. China imports more oil, and uses more carriers. China has a higher automobile components growth rate. China is more competitive using the related and supporting industries on the outer diamond (Sardy & Fetscherin 2009).

In a business context, China shows more competitiveness than India or South Korea considering domestic rivalry. China has thrice the number of companies that can benefit from economies of scale compared to those in India or South Korea. On the international business context, China is less competitive than South Korea but more competitive than India. Its tariffs are higher than South Korea but less than India (Sardy & Fetscherin 2009).

Government influence

China

In China, the government’s influence appears to speed up the increase of international competitiveness in automobile industry. By reducing barriers on FDI and joint ventures, the Chinese government increased international competitiveness. Tariffs in Automotives have been reduced from 75% to 25%. Competitiveness is increased through the rate of technological change and transfer of expertise.

Moreover, FDI creates capital for investment. Technological advancement has an impact on factor conditions such as skilled labor. If the transfer rate of knowledge and skills is higher, less competitive countries are able to catch up with more competitive countries.

Further reductions in tariff rates on automotive components have seen China emerge as a leader in exporting automotive components. China exports on vehicles may be lower than South Korea but it has a larger market share on automobile components (Sardy & Fetscherin 2009).

China’s political environment allows the government to make large scale changes that create competitive advantages. In other countries, large scale changes may take longer because it may be procedural to seek approval from interest groups. Interest groups may disapprove changes that increase rivalry such as joint ventures.

Foreign partners are able to benefit from the large domestic market. As a result of joint ventures, the related and supporting industry in China matches the advancement of technology in the global market. The related and supporting industries have increased China’s automobile industry competitiveness (Sardy & Fetscherin 2009).

The Chinese government has created policies that have changed the global diamond within shorter periods. Such changes are unmatched in other emerging economies.

India

In India’s government influence has slowed down international competitiveness by imposing high tariffs. It has also reduced the rate of technological advancement through bureaucracy. The 1993 ban on licensing FDI in the automobile industry is considered as a factor that reduced India’s international competitiveness.

As a result of the ban, the rate of technological advancement slowed down. A slow rate of technological change affects factor conditions, and related and supporting industries. With a low level of expertise and slow development of related and supporting industries, India’s automobile industry loses international competitiveness (Sardy & Fetscherin 2009).

Funds available for investment were also reduced. Funds available for investment affect other factors of production. Low FDI results in low industry competitiveness. The bureaucratic procedures in India have resulted in a strong oligopoly. In India, the automobile industry involves 3 companies having a 90% market share.

It has resulted in less rivalry in the business context. When there is less competition domestically, firms do not see the necessity to improve their technology or expertise. Low competition domestically may result in reduced international competitiveness (Sardy & Fetscherin 2009).

The change in policy to allow foreigners to enter into partnership with local firms will benefit India’s automobile industry growth rate. High tariff rates (about 35%) are still considered a barrier even after the lifting of the ban on FDI in the automobile industry (Sardy & Fetscherin 2009).

International forces on competitiveness

Lower wage rates in India have created a competitive advantage despite having lower literacy levels among other factor conditions. China also appears more competitive than South Korea taking into account the average wage rate levels. Low wage rates in the two countries’ automobile industries have resulted in larger export volume of automobile components.

However, the volume of vehicles exported remains low in both countries compared to South Korea. In general, China appears more competitive internationally using factor conditions. It has higher inbound and outbound FDI compared to its competitors. More FDI means availability of more capital. It also means a higher rate of technology transfer and expertise.

Highly educated personnel are associated with high R&D expenditure. R&D may increase efficiencies or innovation of new products. India and China lack internationally recognized brands because they had lacked highly skilled personnel in the past. They are forced to acquire recognized brands to fill the gap of recognition. For example, the acquisition of Land Rover and Jaguar by Tata is a step towards brand recognition (Sardy & Fetscherin 2009).

India has less influence from related and supporting industries compared to China. Highly developed related and supporting industries are attributed to increased rate of innovation, and technological advancement. Developments in related industries such as communication may be transferred into the automobile industry.

The benefits may include reduced costs or increased quality among other factors. China has highly developed related and supporting industries which allow it to compete favorably with other more developed automobile manufacturing countries (Sardy & Fetscherin 2009).

China has more companies than India that have the ability to benefit from economies of scale. An automobile manufacturing company may benefit from economies of scale when it produces at least 150,000 vehicles annually. India has only 3 companies when China has 9.

There is less rivalry in India’s automobile industry because the three leading companies have a concentration rate of 90%. With less domestic competition, international competitiveness is reduced. China is more competitive domestically and firms strive to acquire the latest technology. It increases international competitiveness in China (Sardy & Fetscherin 2009).

Using the base rate as Korea, China (99%) is more competitive than India (52%) on demand conditions. China mainly produces for the domestic market where the levels of consumer sophistication are higher than those in India.

Higher consumer sophistication may result in higher product quality that matches international standards. It may increase competitiveness. For this reason, China’s automobile industry is considered to have the same export capabilities as South Korea despite producing mainly for the domestic market (Sardy & Fetscherin 2009).

Home country leading industry DM

Textile, clothing and footwear (TCF) industry in Australia

Factor conditions: The TCF industry in Australia has a large pool of skilled labor. From 2007 to 2011, the country recorded an enrollment of over 7,000 students in the low and medium technology (LMT) training package. There was an increase from 356 in 2008 apprenticeship contracts in laundry certificate level III to 726 contracts in 2010. In 2008, the Australian TCF industry employed about 39,000 people (National profile of textiles, clothing and footwear industry, 2012, p. 7). A highly skilled labor force increases competitiveness.

Demand conditions: The Australian TCF industry contributed $2.8 billion to the country’s GDP and 2.8% to the manufacturing industry value. Sales and services generated $8.3 billion in the TCF industry (Major Industries in Australia, n.d). However, the industry shows a negative annual growth rate. For example, the textiles wholesale sector declines by about 1.6% annually (Textile Product Wholesaling in Australia: Market Research Report, 2012). The size of the domestic market is large enough to sustain the industry.

Business context: In the year 2010-2011, the TCF industry in Australia reported the existence of 12,991 enterprises dealing in TCF products. 3,950 are the laundry and dry-cleaning sector and 1,948 in the cut and sewn textile products manufacturing sector (Major Industries in Australia, n.d, p. 18).

Other business entities in the industry include 33 businesses involved with cotton ginning, 31 deal in wool scouring, 535 in leather processing and leather products, 164 dealing in knitted products among others. There are a high number of enterprises in each sub-sector which indicates the possibility of strong rivalry among businesses in the domestic industry. Intense domestic rivalry may increase international competitiveness.

Related and supporting industries: The related and support industry includes the animal production industry. The TCF is related to the meat industry and fiber cropping. Australia has a large meat industry that may provide leather and other related raw materials (Common Wealth of Australia, 2008).

Government influence: Government influence may be considered strong in the Australian TCF industry because of the amount of government expenditure on assisting the industry. In the financial year 2000-2001, the government allocated 40% of the $3,300 set to assist manufacturing industries on the TCF industry and passenger vehicle manufacturing (Major Industries in Australia, n.d).

TCF Double Diamond Model

Factor conditions: Australia TCF formed about 5% of the total manufacturing industry employment as compare to China (17%), Belgium (7%), USA (4%) and Norway (2%). Countries such as Hungary with a lower GDP had more than 10% of the manufacturing employment being accounted for by TCF (Common Wealth of Australia, 2008, p. 8).

R&D expenditure as a fraction of the value added on TCF industries indicates that Australia spent about 1% compared to Norway (about 4%), USA (less than 1%), and Belgium (about 2%) in 2006. Many countries such as Germany, Finland, Ireland, and Netherlands spend more on R&D per value added than Australia. As a result of this, Australia TCF industry may continue to lose international competitiveness.

In 2007, labor costs in the Australian TCF industry ranged between $13.74 and $17.30 per hour. China labor costs in TCF industry ranged between $1 and $1.50 per hour (Common Wealth of Australia, 2008, p. 12). Using labor costs China’s TCF industry is more competitive than Australia’s TCF.

Demand conditions: Australia imports in TCF products were 91% of the domestic TCF output compared to Belgium (154%), USA (130%), Norway (326%) and Hungary (98%) (Common Wealth of Australia, 2008). The figures show that Australia is increasingly becoming reliant on TCF products imports. Australia has lost international competitiveness. It may also lose its domestic market.

Business context: Most countries in the global TCF market impose tariffs on TCF products to protect domestic markets. Others may include labeling as a way of protecting domestic industries (Common Wealth of Australia, 2008, p. 10). China imposes a tariff rate of 16% on imported TCF products when most countries impose a 12% tariff rate. Australia’s TCF industry is less competitive because of the high tariffs imposed by most countries on TCF products.

Related and supporting industries: The related and business industry may rely on Australia’s level of technology which is more advanced than most countries. It matches the standards in mature economies.

Government influence: Government budgetary assistance to Chinese TCF industry amounted to about $325 million in 2006 (Common Wealth of Australia, 2008, p. 10).

On the other hand, the Australian assistance policy on TCF expired in 2005. However, the Australian government had set aside $747 to be disbursed within a five-year-period after 2005 (Common Wealth of Australia, 2008, p. 50). Countries with continual government assistance may acquire additional advantage in the four determinants that may increase their international competitiveness.

Reference List

Common Wealth of Australia 2008, Building Innovative Capability: Review of the Australian Textile Clothing and Footwear Industries, Common Wealth of Australia, Canberra.

Major Industries in Australia n.d. Web.

National profile of textiles, clothing and footwear industry 2012. Web.

Sardy, M & Fetscherin, M 2009, ‘A Double Diamond Comparison of the Automotive Industry of China, India, and South Korea’, Competition Forum, vol.7 no.1, pp. 6-16.

Textile Product Wholesaling in Australia: Market Research Report 2012, <https://www.ibisworld.com.au/industry-trends/market-research-reports/wholesale-trade/other-goods-wholesaling/textile-product-wholesaling.html>.

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