International Journal for Quality Research 10(3) 471–486 ISSN 1800-6450 Manjeet Kharub 1 Rajiv Kumar Sharma INVESTIGATING THE ROLE OF PORTER DIAMOND DETERMINANTS FOR COMPETITIVENESS IN MSMEs Article info: Received 15.07.2015 Abstract: After the globalization of market the micro, small Accepted 18.08.2016 and medium enterprises (MSMEs) got numerous opportunities UDC – 54.061 to work in integration with large-scale organizations. DOI – 10.18421/IJQR10.03-02 Competitive advantage plays a significant role in deciding how organizations can exploit theses opportunities. So, the aim of this paper is to measure the competitive advantage of MSMEs based upon the Porter’s diamond model framework. A well- designed questionnaire is used to collect data about the various determinants of the model. Based upon the frequency of responses, percent point score (PPS) of each casual variable was calculated. By reviewing the result of this study, it is observed that competitiveness among MSME's sectors is mostly affected by market value. As is indicated by maximum PPS score e.g. 68%, followed by highly educated personnel, production and process technology (62%), further study results indicate that there is a need to increase clusters i.e. related and supported industries as depicted by low score (PPS=49%). Keywords: MSMEs, manufacturing firm, competitive advantage, Porter’s Diamond 1. Introduction1 cost and produces components at a lower price compared to the price big firms must From last few decades, firms devoted to pay for the in-house production of same improving the material and information flow components (Sharma and Kharub, 2015). in the supply chain (Fleury and Fleury, Strategic research throughout 1980 2003). MSMEs play a vital role by providing confirmed company’s specific factors as the parts, components, sub–assemblies to these major determinant of performance. Since companies. MSMEs have simple structure 1990, economic liberalization increased with and excellent working procedures which changing globalizations, the growth of allow flexibility and immediate feedback to trading blocs and mega-markets (e.g. India, customer needs and expectation (Bennett and China) continue to alter the environment in Kane, 2006; Singh et al., 2009). This sector which these industries operate (Christopher has the unique capability to create and Holweg, 2011). The environment in the employment, particularly in the low capital market place has become more complicated, due to the limitation of resources, the 1 abilities of management and its association’s Corresponding author: Manjeet Kharub analytical technique developed by planning email: [email protected] and practices school have become 471 pronounced (Deniz et al., 2013; Hautz et al., review on various competitive strategies. It 2014). The situation makes competitiveness includes cost leadership strategy, as the only option for survival (Chobanyan differentiation strategy, focused strategy and and Leigh, 2006). According to Chiarvesio used resource based competitive positioning et al. (2004), competitiveness of firms can be approach (Porter’s framework). The Porter's characterized by dynamic strategic behavior work provides prescriptions executive in in term of innovation, suppliers and market term of five force analyses, they are (i) factor relationship and ability to organizing and conditions (ii) demand conditions (iii) managing business networks, etc. According related and supporting industries (iv) firm to (Leachman et al., 2005; Kharub and strategy, structure, and rivalry and (v) Sharma, 2015) superior manufacturing government and culture effects to analyze performance (e.g. productivity with quality the competitiveness among MSMEs. The as well as efficiency feature) leads to structure of the paper is organized as: powerful competitive advantage. It has been Section 1 presents a brief introduction about considered that improving competitiveness the competitiveness and MSMEs position. among MSMEs is very important, yet they Section 2 provides theoretical backgrounds have less research attention towards it. For, and detailed about various determinant under example there is little knowledge about Porter’s diamond model. Section 3 presents competitive priorities of MSMEs, and key case study design. In Section 4 results and strategies that they can pursue to meet discusses form the key findings derived from current market demands (Prajogo, 2007). So, the industry case study are presented. there is a great need to conduct more Section 5 discusses the conclusions and main research in MSMEs particularly in rapidly implications of the study. emerging developing countries like India, Brazil, Russia and China (Kharub and 2. Theoretical background Sharma, 2016). Though MSMEs play a critical role in the The roots of strategic management are economy of developing countries, it is also diverse and can be traced to several observed that sickness in MSMEs is disciplines, including marketing, industrial increasing at a rapid rate (Uddin and Bose, economics, finance, military history and 2013). Sickness in MSMEs occurs due to tactics (Mckiernan, 1997; Tasevska, 2006). various reasons like the managerial Conventional economics focused on deficiency, lack of strategy planning, weak traditional resources based view such as role of leading institutes, and lack of land, labor and available capital (Stonehouse technical and marketing support (Sharma et al., 2001; Tuna, 2006). Furthermore, some and Kharub, 2015). The lack of these another factor included, like managerial resources adversely affects their experiences, knowledge of the external performance and consequently the product world, and internal organizational quality. The components supplied with poor environment (Stonehouse and Pemberton, quality could negatively influence the 2002). Since last three-four there has been performance of parent organization. This considerable debate over its key concepts necessitates the authors to study various case and frameworks. Various researchers have studies, as proposed by different authors, and different views and approaches to the identify the various determinants which help strategic management discipline. In previous to sustain competitiveness among MSMEs. literature four strategies have been In general, the aim of this study is to make commonly highlighted (i) perspective aware or improve the fit between the approach (deliberate and planned approach) organization and its environment. To this (ii) emergent approach (learning) (iii) effect, authors performed an extent literature competitive positioning and (iv) resources 472 M. Kharub, R.Kumar Sharma based competence and capability approach the concept of competitiveness at the firm, (McKiernan, 1997; Curran, 2001; Thurer et industry, and national level have been al., 2013). The greatest impact on the fundamental to the development of both modern strategic management discipline theory and practical strategies, and to came from the industrial organization investigate the effect of competitive economics (IO), highlighted by Michael E. capitalism on society and social progress Porter with the applicability of (Narula, 1993; Prajogo, 2007; Mehrizi and microeconomic theory in its pure form. Pakneiat, 2008). Competitive strategy (1980) Michael E. Porter, a well-recognized and competitive advantage (1985) two books economist, has been considered among the by Porter form the centerpiece and founding fathers of strategic management significantly increased the awareness of the (Curran, 2001; Chobanyan and Leigh, 2006; subject among both academics and business Bakan and Dogan, 2012). He has been community. Porter’s saw the base of firm’s recognized as a leading authority on competitive strategy as a linking to its competitive strategy in organizations and environmental. He emphasized that industry more recently the application of competitive structure, to be analyzed by the great five analysis on social and environmental aspects forces, which determines the extent of of business activities (Jin and Moon, 2006; competition and so the firm’s profit potential Stonehouse and Snowdon, 2007). Porter’s (Snowdon and Stonehouse, 2006). Even the contribution to the strategic and management model faces criticisms by some management lies predominantly with the competitive theorists. For example, lack of attention positioning and planning approaches, but the towards the role of national culture, influence of this studies spread well beyond. possibilities of applicability in micro, small The strategies provided by him formed and medium firms (Curran, 2001), the role of rigorous theoretical basis as well as proved technology upgradations (Bellak and Weiss, equally important for practical applications 1993), the role of domestic rivalry in a small for managers (Oz, 2000; Dogl et al., 2012; economy. Esen and Uyar, 2012). His contributions in Figure 1. The Diamond Framework Source: Porter, the Competitive Advantage of Nations, 1990 473 Furthermore, the five force concept has been added capital resource i.e. the quality and attacked on the basis that the principle unit cost of capital available to fund the sector's of analyses is the industry rather than the infrastructure (the type, quality and cost of individual firm (Mintzberg et al., 1998). infrastructure available also including Besides these criticisms, this model is transportation system). According to regarded as the primary analytical (Mckiernan, 1997; Singh et al., 2009; framework of the competitive positioning Stevenson and Fredendall,