Porter argues that a nation’s firms gain competitive advantage if their domestic consumers are _ and _ A) sophisticated; demanding B) numerous; sophisticated C) few; demanding D) numerous; demanding
The correct answer and explanation is:
The correct answer is: A) sophisticated; demanding
Explanation:
Michael Porter, a renowned economist and professor at Harvard Business School, developed the Diamond Model of national competitive advantage. One key aspect of this model is the role of domestic consumers in driving a nation’s firms to gain and sustain competitive advantage internationally.
According to Porter, a nation’s firms benefit when their domestic consumers are sophisticated and demanding because:
- Sophisticated Consumers Push for Innovation and Quality:
Sophisticated consumers have a deep understanding of products and services in their market. They expect high quality, advanced features, and innovation. This compels domestic firms to continuously improve their offerings to meet these high standards. When firms meet such expectations at home, they are better prepared to compete globally, where similar or higher expectations may exist. - Demanding Consumers Drive Performance:
Demanding customers do not accept mediocre products; they require continuous improvement and superior performance. This pressure forces firms to be efficient, innovative, and responsive to customer needs. As a result, firms develop strengths such as advanced technologies, superior design, and excellent customer service, which become competitive advantages internationally. - Early Feedback and Market Testing:
Having demanding and sophisticated customers domestically provides firms with valuable feedback early in the product development process. This allows firms to refine products and processes before competing in international markets, reducing risks and improving success rates abroad. - Market Signals for Strategic Direction:
The preferences and needs of domestic consumers often signal emerging trends and future global demand. Firms attuned to these signals can anticipate changes and position themselves ahead of competitors.
Why not the other options?
- B) Numerous; sophisticated: While having many consumers can be advantageous, the sheer number alone does not guarantee competitive advantage. It is the quality of demand that drives innovation.
- C) Few; demanding: A small number of consumers limits market size and reduces the opportunities for firms to grow and learn.
- D) Numerous; demanding: While having many demanding consumers might be helpful, Porter’s model emphasizes sophistication (understanding and knowledge) more than just the size of the market.
In summary, Porter argues that competitive advantage arises when domestic consumers are both sophisticated and demanding, pushing firms to innovate and improve, thereby preparing them to succeed globally.