Kuwait is a petroleum-based country, situated in Western Asia. The country already accepts foreign direct investment though the amount is not sufficient. In 2003, the government of this country implemented a new law stating that a foreign company can own 100 percent ownership of a company in any business sectors. Due to this insufficient amount of foreign investment, it is essential for a policy expert to attract foreign investors to invest in different business sectors. In this context, the Diamond of National Advantage of Porter can play a significant role (Mboya and Kazungu 2015). According to this model, the government of a country generates advanced factor endowments through which the country can experience comparative advantage.
To attract foreign investors in Kuwait, a deep analysis of Porter’s Diamond model is essential. Through analysing this model, the country can understand that in which business sectors it has comparative advantage. The entire discussion will be based on industrial sectors of Kuwait. This diamond model provides four chief determinants that the nation can establish of industries.
The above diagram represents a diamond consisting with four determinants through which a country can enjoy comparative advantage. These determinants further help the policymaker of the concerned country to understand about availability of different resources and skills. Moreover, the policymaker can collect information regarding decision-making procedures of these firms to understand their business opportunities (Acs et al. 2017). These opportunities are depended mainly on skills and resources. In addition to this, this diamond model further can help a firm to set certain goals or business objectives. This in turn can influence companies to innovate new technologies. To attract foreign investors for more investment, the policy maker can analyse each component of these four determinants deeply for understanding the actual scenario. These determinants can be described as follows:
Factor conditions: Porter points out that the nation needs to generate some essential production factors which the country does not possess. Thus, the concerned policy maker needs to focus on human resources, knowledge resources and physical resources to improve the comparative advantage of the
country. Human resources are considered as one of the essential factors of production. Thus, through skilled and efficient labours within production system, the country can achieves comparative advantage (Tsiligiris 2018). Therefore, the policy maker needs to focus on various skills developing programs for improving labour condition in Kuwait. Knowledge resources also consider an important factor. Through implementing proper knowledge in production process, Kuwait can obtain comparative advantage. These firm can produce higher standard of products with comparatively lower production costs. Physical resources also help a country to enjoy comparative advantage, as it can help the country to establish proper infrastructure. Infrastructural facilities can help companies to transport raw materials as well as final output to desired location easily. Moreover, this sector chiefly focuses on electricity as well as construction sector, which are essential components for industrial sector of Kuwait. Hence, the policy maker should focus on infrastructural facilities to implement further development in this sector.
Demand Condition: According to Diamond of National Advantage, demand condition is considered as another essential determinant to analyse national competitive advantage. This is also true for industrial sector of Kuwait. All industrial organisations need to fulfil the local demand of the country at first before exporting these in other countries (Chong 2017). This process can help these industries to adopt proper business strategies through analysing local markets. Demand condition of Kuwait chiefly depends on magnitude of demand in local market, number of buyers as well as growth pattern of the business sectors. These factors can help Kuwait to earn comparative advantage to produce certain products efficiently. As a result, large amount of production can help this country to export excess products in international market. This strong demand and market size in local market can attract foreign investors positively to invest in this country (Żmuda 2017). Thus, the policy maker can analyse the local market of Kuwait to understand its market size, growth and number of buyers in Kuwait. Through developing proper development strategies, the concerned person can help companies of Kuwait to earn comparative advantage. This further can help these business organisations to attract foreign investors.
Related and supporting industries: The country can sustain any business properly without any supporting or relative industries. In Kuwait, the policymaker needs to focus on availability of supportive industries for specific business sectors. The country mainly produces oil. Hence, the country needs to establish other industries that can support this oil producing companies significantly. In addition to this, the policy maker should focus on the availability of capable suppliers.
Firm, strategy, structure and rivalry: Without proper strategy, business structure as well as rivalry, it is not possible for any firm to obtain comparative advantage. The competitiveness of a firm or industry mainly depends on the process based on which they create, organise and manage various types of domestic rivalry (Kordalska and Olczyk 2016). Hence, for different size of firms, different types of strategies are applied. In Kuwait, each firm needs to analyse economy of scale along with corporate governance that further can insist these companies to earn comparative advantage.
In Kuwait, firms mainly exports oil as well as refined products and fertilizers. Hence, it can be considered that these firms earn comparative advantage through producing these products. Therefore, these firms enjoy economies of scale during their production process. Moreover, new policies, rules and regulations of government can help Kuwait to experience comparative advantage.
Kuwait is one of the richest countries across the world. Therefore, the county easily obtains efficient labours in their industries. Moreover, the country has huge amount of capital accumulation and infrastructural facilities (Haque, Patnaik and Hashmi 2016). Moreover, Kuwait has a large market for oil production. Hence, these factors can influence foreign investors to invest in this country.
Therefore it can be concluded that Diamond model of national advantage has significant importance in any country. This is applicable for Kuwait as well. The country can experience comparative advantage to produce some products, such as oil. This in turn helps these firms to attract foreign investors.
Answer Question 2
Basic policies that the government should adopt for enhancing the capacity of the industries for innovation and upgrade
Strengthening research and development: one of the most important policy for enhancing the upgrade and innovation of the industries. Research and development usually comprises of the innovative activities which is generally look after by the governments for developing any kind of new products or improving the service. The government should be spending more amount in the research and development sector for innovation. Therefore He should support the scientific and technical research for upgrade (Guan and Yam 2015). The government should finance enough for the development of the research and innovation. Generally it has been observed that there is a positive correlation which is present between the research and development and productivity across all the sectors (Kaelble 2017). The government should be supporting the research and development so that new products and innovated and the industries can update itself. However, research is one of the risky financing areas.
Public financing: the government should subsidize the project which related to the enhancement of the industries. It must be noted that the innovation performance and the financial flows are directly related to each other. Therefore it can be stated that finance is the significant factor for driving innovation at all levels (Wallace 2017). Therefore government funding is very important for innovation. Public funding is the money that generally flows from the government which is related to taxes which will help in industrilaization. The funds are generally gathered and distributed by different levels of the government
Direct assistance: the government can provide various kind of helps to the business which will help in enhancing industrialization. The government can provide tariffs which will save them from foreign competition. Taxing the imports sometimes provides the opportunities for the local industries to innovate itself.
The government should also help in boosting imports in order to help in increasing innovation. Importing advanced technologies can help in enhancing the capacity of the industries (Mazzucato et al. 2015). The government should therefore also help in boosting the foreign direct investment in the economy which can again boost industrialization. Therefore increase in the foreign direct investment and boosting imports can help in innovation of the industries.
Subsidies: government can provide subsidies and tax cuts for innovation in the industry. Providing huge amount of subsidies in the industries can help in innovation (Kaelble 2017). Therefore, providing subsidy to the business and industry can help in increasing industrialization where most of the subsidies are cash grants or loans. Tax concessions can also help in industrialization and enhance innovation. Subsidies can be offered in two ways were one is termed as the direct subsidies and the other is the indirect subsidies.
Tax advantage: the government can provide tax advantage or economic bonus which are applied to certain industries. The tax advantage includes tax reductions, tax free or tax deferred. The government in general establishes tax advantages for encouraging the private industries. For enhancing the industrialization, government should introduce tax advantages (Guan and Yam 2015). Therefore, the tax advantage will be helping many industries for enhancing the capacity.