Knowledge Series

Business Theory Demystified

Porter Diamond Theory and Product Management

In the previous post of this series, we discussed how trade theories can be applied to gain a competitive advantage in business. We looked at the story of Rakesh and Rajat, who leveraged the principles of comparative advantage theory and emerging technologies to succeed in their respective fields.

In this post, we will focus on the Porter Diamond Theory and how it can be used to improve product management in Indian startups and MSMEs.

To begin with, let me introduce you to Aman and Vivek, two entrepreneurs who started their own businesses in the same industry. Aman started a company that manufactures high-quality leather bags, while Vivek launched a company that sells handmade ceramics.

Both Aman and Vivek faced similar challenges in their businesses, such as managing their supply chain, marketing their products, and improving their product quality. However, Aman's company was more successful than Vivek's, and he was able to expand his business and reach new markets.

So, what made the difference?

The answer lies in the Porter Diamond Theory, which proposes that the competitiveness of a company depends on four factors: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.

Let's look at each of these factors in the context of Aman and Vivek's businesses.

Factor conditions refer to the resources and skills available in a country. In Aman's case, he had access to high-quality leather and skilled artisans, which helped him produce premium quality bags. On the other hand, Vivek faced challenges in finding skilled artisans and sourcing high-quality materials, which affected the quality of his products.

Demand conditions refer to the size and sophistication of the local market. Aman's company was based in a city where there was a high demand for premium leather products, which gave him an advantage over Vivek's company, which was located in a place with a smaller and less sophisticated market.

Related and supporting industries refer to the presence of suppliers, competitors, and complementary industries. Aman's company had access to a network of suppliers and complementary industries that helped him improve his products and processes. Vivek, on the other hand, faced challenges in finding reliable suppliers and complementary industries.

Firm strategy, structure, and rivalry refer to the management practices and competitive environment of the company. Aman had a well-defined product strategy and a strong competitive spirit, which helped him differentiate his products from the competition. Vivek struggled to develop a strong product strategy and faced intense competition from established players in the market.

Based on the above analysis, we can see that Aman's company had a competitive advantage over Vivek's company, primarily because of the better factor conditions, demand conditions, and related and supporting industries. However, Vivek can use the Porter Diamond Theory to identify areas where he can improve his business and gain a competitive edge.

For instance, he can focus on building a network of suppliers and complementary industries to improve his product quality and reduce costs. He can also develop a strong product strategy and differentiate his products from the competition.

In conclusion, the Porter Diamond Theory provides a useful framework for product management in Indian startups and MSMEs. By understanding the factors that contribute to competitiveness, entrepreneurs like Aman and Vivek can identify areas where they can improve their businesses and gain an edge in the market.

In the next post of this series, we will discuss how Indian startups and MSMEs can leverage emerging technologies like blockchain and IoT to improve their operations and create new business models. Stay tuned!

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