Porter’s Competitiveness Theory: Usaid’s Approach to Competitiveness

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Table of Contents

Introduction
Competitiveness
Competitiveness Strategy
Importance of Competitiveness Strategy
Components of Competitiveness Strategy
Conclusion
References

Introduction

The current era is the era of growth. It is the era of globalization. The world is growing shorter and closer with organizations stepping out of the boundaries of their home countries spreading all around the world. Business means so much more than what it did just some decades ago and it’s getting harder and harder to compete and maintain the market share in this ever-evolving market. Hence, a competitive strategy is essential for industries in this modern world. Keeping in mind Porter’s Competitiveness Theory, the USAID (US Agency for International Development) aspires to create and provide the developing countries the competitive strategies for its various industries to help them become competitive in their respective areas and prosper in the national as well as the international market.

Competitiveness

Competitiveness can be defined in terms of two different levels. Firm Competitiveness refers to the position of a particular firm in the market within the related industry. The better the firm performs, the bigger the competitive advantage it has and the more it can differentiate its product from those of the competitors, the more are the chances for it to succeed in the market and sustain its market share. Industry competitiveness on the other hand is much more complex. It has to deal with many other socio-economic factors interacting much more dynamically. It depends upon the ability of the firms to meet the demands of their customers, to analyze and utilize the end-market opportunities, and to cope with the ever-changing market trends and demand. As globalization has progressed, it has become important for firms to reduce rivalry and come closer to work together in order to grab a better and bigger market share in the international market. They need to enhance the product and mold it according to the market demands. They need to improve upon product differentiation, branding, etc if they wish to prosper and maintain their status in the market.

Competitiveness Strategy

In order to achieve competitiveness, there are various paths that one can follow. The USAID recommends the Value chain approach in order to help firms achieve competitiveness in this world of globalization. This approach has been developed by the AID after ten years of practice and research in the areas like global value chains and MSE development. It is a cyclical series of steps that industries should follow to get competitive in their respective fields. These steps include “Value Chain Selection”, “Value Chain Analysis”, “Competitiveness Strategy”, “Design & Implementation”, and “Monitoring & Evaluation”. Among these stages, the development and implementation of a proper competitive strategy is the most important step, since it marks the direction of the industry’s decisions. When it comes to small firms, they can not really contribute towards the competitiveness of every single industry, but there are many industries in which the MSEs (Micro, small & medium enterprises) contribute towards a very large chunk of competitiveness. Such industries include tourism, garments, construction industries, etc.

According to USAID, first, the industry should work with a limited number of firms, as it did in the case of the GMED project in India. This helps in evaluating the potentials of the industry, helping it take off in the right direction and develop the trust of the stakeholders and various actors in the whole chain. Then, all other firms may gradually be included later on to induce competitiveness in the industry as a whole. This way, the firms are able to see each other as being much more than mere competitors and they involve in joint activities and collaborative ventures those benefits all in the longer run.

Importance of Competitiveness Strategy

The implementation of the competitive strategy is very highly important in today’s world for a number of reasons. The most important and prominent reason is the one mentioned above; that is, it helps the firms to see each other as something other than mere competitors because this phenomenon hinders the firms’ ability to help each other and work together in the global environment. It helps the firms to look at each other as partners in the field opting for and working towards the same goals and working for the prosperity of the whole industry overcoming various mutual barriers and working to solve the common problems that they share in their respective fields.

Moreover, a good competitive strategy promotes inter-firm cooperation, helps resolve common problems and provides mutually benefiting incentives. It promotes an air of unity and equality across the industry and helps reduce rivalry inducing healthy and positive competition to do better.

Components of Competitiveness Strategy

According to USAID, there are three components of the Competitiveness Strategy that should be implemented accordingly to reap as many benefits out of the strategy as possible. These components include:

End Market Competitiveness

This component involves three steps in order to achieve end market competitiveness, they are:

Determining where to compete: it is highly important for an industry to know its end market, that is, the customers it is catering to at the end of the supply chain, what they want, what they need and what they demand, no matter at which point of the supply chain the company lies. The industry needs to analyze their market and their demands and then develop or alter their product accordingly in order to achieve competitiveness.
Determining how to compete: there are various ways or areas on the basis of which firms in any particular industry can compete. They can compete on the basis of product differentiation providing something very different in their product than that of the competitors and positioning their product according to that unique selling proposition (USP). They can also compare on the basis of efficiency delivering their products distinctively quicker than the completion. Moreover, the firms may also compete through market focus targeting narrower target markets or niche markets in order to establish a competitive market share.
Determining the Products and operational characteristics required to compete: when the target market is decided and focused upon, then the product and operations should be altered according to the demands and expectations of that particular target market to achieve customer satisfaction, retain the market share and induce brand loyalty.

Upgrading Requirements

Once the target market is decided and the approach to compete (differentiation, efficiency, etc) is strategized, the infrastructure needs to be looked upon for any required changes that might be necessary in order to produce the desired product.

Plan for Sustaining Competitiveness

Finally, a solid plan needs to be made in order to sustain the competitiveness hence achieved. For that, a separate strategy needs to be made keeping in mind the various factors like customer preferences, changing market trends, evolving customer base, changing customer demands, etc.

Conclusion

This value-chain competitive strategy took 10 years to develop through constant practice and research of USAID professionals and it surely is a great source for the industries in the developing countries to take help from in order to achieve competitiveness and sustain it over a considerable period of time.

References

Cope B., Brown R. (2002). Value chain clustering in regional publishing services markets‎. Press City.

Hoskisson r. (2008). Strategic management – concepts and cases: competitiveness and globalization‎. Cengage Learning.

Humphrey J., Shmitz H. (2000). Governance and Upgrading: Linking Industrial Cluster and Global Value Chain Research. biblioteca.fstandardbank.edu.ar. 2009.

Kaplinsky R. (2001). Globalization and Unequalisation: What can be learned from Value Chain Analysis. Globalization and trade: implications for exports from marginalized economies. Page 117. 2009. Web.

Lee K., Kuo M., Huang W., Lin S. (2001). Competitiveness Model of the International DISTRI-PARK using the Virtual Value Chain Analysis. Journal of The Eastern Asia Society for Transportation. 2009.

Nabi I., Luthria M. (2002). Building competitive firms: incentives and capabilities. The World Bank.

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