Title: A Service-Based View of Porter's Model of Competitive Advantage
Abstract: According to Porter (1990) successful firms in competitive markets generally consist of clusters of firms within industries that are linked via vertical or horizontal relationships. The present paper modifies Porter's so-called diamond model of competitive advantage to take into account what is required for service firms to be competitively successful, rather than just the manufacturing firms manly in primary industries upon which the original model of Porter was based. In our analysis, service clusters are defined as agglomerates of firms which provide a service of one kind and are consumer-oriented. It is argued that such a service-based view of Porter's model extends the model's applicability besides providing insights of its own. Introduction During the last decade, interest has grown in the phenomenon of clustering of firms within and across particular industries. This field has seen research on economic geography (Hall and Markusen, 1985; Storper and Salais, 1997a, 1997b; and Saxenian, 1985, 1994), agglomeration economies (Harrison, Kelley and Gant, 1996), urban and regional economies (Beckman and Thisse, 1986 and Stahl, 1987), regional science (Scott, 1991 ; Glaeser, 1994; Henderson, 19%), and social networks (Burt, 1997; Harrison and Weiss, 1998). From the perspective of clustering, the bases of the competitive advantage of firms need to be sought beyond its own immediate organizational context. Firm survival is increasingly contingent on the ability of firms to adopt a holistic perspective on their business, encompassing all stakeholders including customers, employees, retailers, suppliers and shareholders. Studies on clustering have typically been developed from, and used to explain, competitive advantage among manufacturing firms making one or more products. Since the early 1990s, the dominance of service firms and industries over manufacturing or primary firms and industries has been a global trend. Growing international competition has driven many primary firms to transform themselves into customer-oriented, service-focused enterprises regardless of the products they sell (Kandampully, 2002). Customer satisfaction has become the mission and purpose of most firms (Drucker, 1973). When such firms understand the needs of customers and realise that those needs cannot easily be met, if at all, by relying on their traditional skills or abilities, they typically find it necessary to establish strategic alliances with other firms (Peppers/Rogers, 1997). Successful strategic alliances depend on the capacity of firms to creatively combine their respective core skills (Prahalad, 1993), both from both within and outside the firm itself. Service clustering can help firms strengthening their 'core competencies' without acquiring or buying other firms (Kandampully, 2001). However, the dynamics of such clustering is not well understood for service firms and industries. In our view, what is needed to help us understand the phenomenon is a modification of Porter's well-known model in the area to take account of or incorporate what is involved in the case of service firms or industries. The starting point for our analysis is, and must be, an examination of Porter's (1990) itself. Theoretical Foundations of Porter's Model Porter (1990) argued that industries in which a country is internationally competitive generally to not comprise a number of diverse and unconnected firms. Instead, he argued competitive industries generally take the form of specialized clusters of indigenous or home-based firms, which are linked through vertical relationships (buyers/suppliers) or horizontal relationships (common customers, technology, skills, distribution channels, etc.). Porter (1990) found evidence for this view from the results of his studies of 10 countries covered in his book, which results led him to conclude that 'the phenomenon of industry clustering is so pervasive that it appears to be a central feature of advanced national economies'. …
Publication Year: 2008
Publication Date: 2008-03-01
Language: en
Type: article
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Cited By Count: 7
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