Culture: Part II

Porter’s Competitive Strategy

For Michael Porter a firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. As stated in the summary of Chapter 2, there are two types of advantage, the low cost and the differentiation advantage. These 2 advantages combined with scope of activities which of course the firm would like to achieve, will lead to three generic strategies which will lead to a good performance. The three generic strategies are cost leadership, differentiation, and focus.

In cost leadership, the company or the firm would want to be the low cost producer in its industry. A low cost producer must find and exploit all sources of cost advantage. If a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.

In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.

The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.

The focus strategy has two variants
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments.

All the strategies mentioned have a grave effect in the performance of a firm; however, different strategies have different adverse effects. In the strategies that are mentioned above, the differentiation strategy relates to the article more than anything else. If consumers would see a product as a unique necessity, then they will buy it without questions, even if there’s going to be an existence of imitations, given that they’re going to offer quality, then sustaining their progress wouldn’t be that much of a task. Given that now, economic culture is already changing in a slow pace, yet sustainable way, the assurance that firms can invest in risks like this is not something that they’re going to regret. Even if they invest in research or something like that, the products that would be purchased from them is much more than what they invested, superseding their capital, gaining more than what they thought they can.

Cost leadership, if successful would also benefit the company, if you can produce products in a much lower price compared to your competitors given the same quality, then the logical thing for consumers to do is to purchase your products. But how is that attainable? Multi National Companies. They invest in countries with cheap labor, the salary that they give the workers is more than what domestic companies can offer, but they don’t lose anything because even if they offer more than what domestic companies can, they’re still able to save up because the standard of living is different. Workers from these countries, who offer cheap labor will perform well, will be trained just like how the workers from developed countries are being trained, and will receive the same incentives. Take the call center industry for example. It solves the problem of unemployment for some, and worsens the problem of under employment on the other hand. People will work well, even if they’re in a less developed, cheap labor country, thru globalization, which is being epitomized by MNC’s, economic culture has already been changing.

Focus strategy however can be detrimental to the consumers, because in this strategy, especially the differentiation focus, the firms just exploits the special needs of the consumer. This means that if in case such product will be needed in times of emergency, calamities, etc. the firms can choose to increase or lower their price because it wouldn’t be surprising if they have they monopolize the product. It works for them because they will always earn.

Sophistication of ideas would always be incorporated in the sudden change of economic culture. As globalization spreads, as nations embrace what globalization has to offer, changes will happen and the common goal is prosperity. However, traditional culture will always come in the way. Those who grew up with it would stick with it, the young generation; those people who strive to live better, those individuals who wish to improve their living standards will be the actors to pursue innovation and change, to make things work, to go with the flow.


Is culture the source of underdevelopment?

No one would want to compromise their progress for a belief which they know is hampering them from improving. Some cultures just had no choice but to under develop because they have no option. These countries were never given the opportunity to develop, the economic system that they’re in has nothing to offer but flawed economic culture, no incentives, and also prosperity at some point became unattainable. Even if the people in the less developed countries have poor work ethics, can we blame it on them and them alone? They work just as hard as people in the developed countries, the benefits that they get are not the same, sometimes there isn’t any, and the salary just won’t compensate, given these reasons can you blame them? No.

Nowadays, we see MNC’s transferring their companies, factories, and offices in countries which offers cheap labor, they spend less, earn more, and those who’re employed by these companies gets more than what local industries has to offer. Let’s take the call center industry in the Philippines as an example, if you observe those people who works in call centers, they can be really stressed after work, rant about their customers and all that, however they perform accordingly to the rules that are set by the company, provide quality customer service, or at some point exceed the expectation, they do this and it can be surprising that they’re able to because these foreign companies came from a country that has a different economic system and culture, and since the workers will provide service to foreigners, they are being taught to adopt the same culture and economic culture. If one’s economic culture knows that they won’t get any reward from slacking off, if they notice that almost everyone is progressing, they know that they have to adapt to changes, which in the long run will benefit them.

So is there really an unproductive culture? Or is it just because cultural differences played a big role which hindered on country to another from doing transactions and negotiations? Actually, the readings made it clear, and I think that it’s universal that everyone would want to progress and prosper; it’s just that country that weren’t given a chance to do so become hopeless about it.

Also, culture isn’t the only thing that should be blamed for underdevelopment, different institutions should also be responsible for lack of training and knowledge of their people. The government in some countries still believed in flawed economic theories and ideologies, they speak according to their emotions, educational institutions only preach what they want to preach, which sometimes is based on influence, personal feelings and false matter. The quality of the work force then leads to the ones who’re unproductive or pessimistic about progress and prosperity.

At the end of the day, the individuals will still have to choose their own path, to prosper and progress on their own by adapting the changes in the economic system and culture which is now being brought by MNC’s and adapt to its system which may or may not change their way of living.