Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others. This model of determining factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants:
1. Factor Conditions
Factors can be grouped into human resources (skilled labor, qualification level, cost of labor, commitment etc.), material resources (natural resources, vegetation, space etc.), knowledge resources, capital resources, and infrastructure. They also include factors like quality of research on universities, deregulation of labor markets, or liquidity of national stock markets.
Porter points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions.
To established the retail industry in UK almost the same factor conditions work for ASDA and TESCO. Both have skilled workforce and sophisticated infrastructure, skilled human resources or a scientific base, speed of creation, speed of upgrade, and degree of specialisation in retail industry.
2. Related and Supporting Industries
A set of strong related and supporting industries is important to the international competitiveness of firms. This includes supplier and related industries. When local supporting industries are competitive, firms enjoy more effective and innovative inputs. Internationally competitive home-based suppliers create advantage in downstream industries through superior inputs, co-ordination in the value chain and innovation and upgrading.
The competitiveness of retail industry is benefit from the local industries, local producers and local farmers. ASDA and TESCO are both selling almost similar items like Grocery, Fresh, Wine, Clothing, Phone accessory, Electronic goods. We can see both retail company-ASDA and TESCO has a good supply chain with their local Industries, local Producers, local Farmers and foreign suppliers.
3. Firm Strategy, Structure, and Rivalry
The context of characteristics of firm strategy, structure and rivalry in different countries also helps explain bases of advantage. The conditions in nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.
TESCO implement a clear cost leadership strategy, as market leaders they benefit heavily from economies of scale. The introduction of their own brand allowed the company to cut their costs and increase their profit margins. Tosco's current strategy is very much one of growth. Depend on the feature aimed at the high street consumer TESCO offering different categories shop and services-
In ‘'Tesco's Extra'' stores here are over 15,000 of their own brand products. Customer can buy any product in cheaper price. "Tesco Extra" stores, selling not just food, like other supermarkets but material products such as kitchen accessories, entertainment items such as televisions and VCR players and CDs, magazines and cleaning products.
"Tesco Metro" was introduced. This was a feature aimed at the high street consumer while offering the benefits of a large supermarket.
"Tesco Express" in essence a petrol station with a small Tesco store onsite. This offered customers convince products i.e. bread, milk and essential grocery items.
Tesco Direct - The recent interim results show how Tesco's non-food products have made good progress. Tesco's Direct will offer the vast range to anyone with computer access.
Telecommunications - Tesco launched an ISP service back in 1998, but have invested more heavily in this field since 2003. Tesco's mobile is in an association with O2 and their ADSL package with NTL. Their most recent example of differentiation is the “Tesco Internet Phone”, which is an innovative product making use of the voice over IP capabilities.
Personal Finance - Tesco Personal Finance displays to the extent the corporation is diversifying, now moving outside the retail sector. It is marketed in store and offers all the normal functions of a bank as well as insurance.
If we look at the ASDA‘s main strategy is bit same as TESCO-is the ability to keep costs low and pass that on to customers in lower prices. All the ASDA stores have largely accommodated similar with ‘'TESCO EXTRA'', have the ASDA Direct, George for clothing, Groceries and Financial services. But ASDA don't have the store like Tesco metro or Tesco Expess where Tesco's current strategy is very much one of growth.
Further, domestic rivalry and the search for competitive advantages within a nation can help provide organisations with bases for achieving such advantage on a more global basis. UK's retail industry such Sainsbury's, Marks & Spencer, Morrisons, Waitrose and so on are the good example of this.
4. Demand Conditions:
Demand conditions influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. According to Porter, home demand is determined by three major characteristics: their mixture (the mix of customers needs and wants), their scope and growth rate, and the mechanisms that transmit domestic preferences to foreign markets.
Porter states that a country can achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors.
The huge demand and high quality desires in retail industry in UK in resulted TESCO and ASDA to produce high quality products.
Michael Porter,The Competitive Advantage of Nations, 1990.
Prentice Hall, Exploring Corporate Strategy, 7th edition.