International Trade

International Trade

Introduction:

Porter’s diamond theory describes how nations have gained competitive advantage from the four determinants highlighted in this theory. The four determinants include factor condition, demand condition, supportive industries, firm’s strategy, structure and rivalry and government. In this paper we compare Japan and South Africa with regard to the utilisation of these four factors to gain comparative advantage.

Japan is the second largest economy after US in terms of Gross Domestic Production (GDP). However the two economies are different in various aspects, example Japans economic development is attributed to the high technological innovations. The South Africa however is a less developed country compared to Japan.

Factor condition:

According to porter the key factors that lead to comparative advantage include skilled labour, infrastructure, capital and resource, however porter identifies that key resources are created and not inherited and some of these inherited resources include raw materials. South Africa has less skilled labour compared to Japan and that South Africa may have more raw materials example Gold mines and other mineral deposits but it still lags behind in terms of development.

International Trade

This is because Japan has adopted key factor utilisation where it concentrates more on technological advancement through research and development.

Demand condition:

Japan has sophisticated consumer demand and this means that consumers are more interested in the quality of products, domestic demand in this case makes firms in this country to be competitive and this gives the country competitive advantage. In South Africa consumers are not much into quality and for this reason the country is less likely to be acquiring comparative advantage.

Supportive industries:

There exist more complex supportive industries in Japan than in South Africa, therefore production in Japan is much easier than in south Africa, however it is more likely for investors to invest in south Africa in order to avoid high competition faced in Japan.

International Trade

Firm strategies, structure and rivalry:

In Japan career opportunity and prestige is more evident than in South Africa, this is attributed to the existence of skied labour, in Japan there are more career positions that hold prestige while this less evident in South Africa.

Both countries have hierarchical forms of organisation and therefore they are similar in terms of management and therefore competition in this regard is likely to be the same in both countries. Regarding competition motor firms and technological goods in Japan are more likely to face more competition than in the south Africa, this is because Japan concentrates more in machinery goods while there is diversity in the south Africa, for this reason therefore it is more likely that more competition will be faced in Japan than south Africa in technology based goods.

Government:

The government according to porter is an important factor in the realisation of comparative advantage. The government encourages this through subsidies, taxation, education policies and the enforcement of standards. The Japanese government maintains close government and industrial cooperation and for this reason the Japanese government is more likely to support its firms in gaining comparative advantage, in the South Africa the government is more likely to subsidise its firms to gain comparative advantage.

Conclusion:

International Trade

In choosing which country to invest in it is first important to consider the expected competition in the country, in Japan it is expected that opening a motor related firm or an electronic good firm will face more competition due to the already existing countries. Due to less competition in south Africa the economy has less comparative advantage, infrastructure is more supportive in Japan than in south Africa and for this reason it would be better to invest in south Africa than in Japan due to the expected competition, however investing in Japan will hep a firm to gain competitive strategies and also gain from existence of skilled labour, supportive industries and supportive infrastructure.

References

Economist (2008) South African economy, retrieved on 1st march, available at http://www.econ omist.com/countries/SouthAfrica/

Japan economy (2008) the facts on Japan economy, retrieved on 1st march, available at http:// www.mofa.go.jp/policy/economy/japan/index.html

South Africa business (2008) Investing in South Africa, retrieved on 1st march, available at http:

//www.southafrica.info/doing_business/investment/

South African economy (2008) South Africa industries, retrieved on 1st march, available at http:

//www.southafrica-travel.net/economy/e_gold.htm

World Bank (2008) report on world development, retrieved on 1st march, available at http://ww w.worldbank.org/wdr/2000/fullreport.html