Application of Porter's Diamond National Advantage Theory for FDI in Kuwait

This report discusses the application of Porter's Diamond National Advantage theory for attracting and retaining FDIs in Kuwait. It also provides recommendations for the Kuwaiti government to enhance the capacity of their industries in terms of innovation and upgradation.

Running Head: Business Level Strategy
Business Level Strategy

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Table of Contents
Diamond of National Advantage....................................................................................................................... 2
Recommendations for Kuwaiti government............................................................................................... 3
References................................................................................................................................................................. 5

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Diamond of National Advantage
FDI (foreign direct investment) is considered as a type of investment which is made by one
company situated in other than the country of investing company. This investment is
considered as an effective tool for growth and development for the developing countries
and in relation to this, developing countries invest a huge amount of their national income
in making the country’s infrastructure attractive as well as effective through which
multinational corporations from different nations could be attracted and invest in their
countries. Due to globalisation, tech-revolution and introduction of internet, drastic
changes have been observed in the functionalities of business entities at international level.
These factors have been the major determinants for the organizations to expand their
businesses in the international market. FDI have become a necessary part of GDP for the
developing countries and in relation to this, these countries regularly take relevant steps in
order to attract FDIs especially from developed countries (Grant, 1991).
Even as the world has observed increasing number in GDP numbers and growth in the
trade, although, global flows of FDIs fell by 16% in 2017 which is estimated to $1.52
trillion. In 2016, global flows of FDIs stood at $1.81 trillion. FDIs in the developed countries
were decreased in the last year and at the same time; FDIs in the developing economies
were increased. The increase in the FDIs in the developing economies has helped them to
pace up towards sustainable development and growth. Despite the decrease in the FDIs in
the developed countries, United States stood at the leading position in the list of highest
global FDIs i.e. $311 billion followed by $1.44 billion in China.
In this report, FDI structure and the requirement of FDI in Kuwait will be discussed by
application of the Porter’s Diamond National Advantage theory. In the second part of the
report, appropriate policies will be discussed which could be adopted by the government in
order to enhance the capacity of their industries in terms of innovation and upgradation
(International Trade Administration, 2017).
Kuwait is one of the biggest exporters of petroleum products and with the help of this;
Kuwait has been able to acquire seventh position in the list of leading millionaire countries

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in the globe. Primary source of income for Kuwait is petroleum industry as it contributes
approximately 90% in the overall government’s income and contributed more than 50%
towards the GDP of the nation (International Trade Administration, 2017). In the last few
years, Kuwait’s income from the petroleum industry has decreased slightly, thus, Kuwaiti
government has transferred their interest towards secondary financial services (Smit,
2010).
In relation to this, application of Diamond of National Advantage theory in order to attract
and retain FDIs will be discussed below:
Diamond of National Advantage theory has four elements which are as follows:
 Factors of production: Every country is blessed with certain natural resources
while some are blessed with effective manpower which helps them to boost up
their productivity along with developing effective position in the global market.
For example, Kuwait is blessed with various natural resources which have made
them one of the largest exporters of oil and on the other hand, Japan and China
has effective technology and human resources respectively that have made both
the countries to stand in the list of favourite destinations to invest for gaining
positive outcomes. Due to slight decrease in the income from petroleum industry,
organization has moved towards other sectors such as financial services in order
to retain its acquired position in the global market. With the rise in the usage of
technology by other countries, FDI in Kuwait has been decreased and to regain
the lost FDIs as well as to attract other companies from the international market,
Kuwaiti government has decided to adopt measures on the basis of latest trends
to retain the country’s image in the global market and to attract the FDIs (Rossi,
2015).
 Demand conditions: This factor refers to the analysis of demand for the
products of one organization in their home market. With regards to this,
appropriate measures are being adopted for increasing effectiveness of those
products in order to enhance organizational performance (Porter, 2000).
Consideration to this factor, demand for the products are analysed in the home

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market in order to promote them into the international market. For example,
Kuwait is one of the biggest oil exporters in the international market and the
demand for crude oil is much high in the Asian market as it is one of the largest
consumer segments across the globe. In the same manner, Kuwait is focusing
towards other sectors rather than the petroleum in relation with marking up its
position in the list of top countries with highest FID inflows (Vizer & Sears,
2017).
 Related and supporting industries: Kuwait is focusing towards other
industries and their primary area of interest is financial services. Apart from this,
Kuwait is also focusing towards one of the most rising industries i.e. information
and technology and automation sector. With the increasing demand of these
industries, Kuwait could also invest in these industries with the objective of
attracting FDIs from behemoth multinational corporations along with making
their primary sector i.e. petroleum industry more effective along with generating
higher results (Delgado, Porter & Stem, 2015).
 Organizational strategy, structure and rivalry: As every country has unique
set of strategies, resources and other factors, in the same manner, every country
is blessed with certain sort of minerals, natural resources, etc. This makes
difference between countries and these factors become the major attractions for
the multinational companies to expand their business in these countries.
Recently, Kuwaiti government has established its presence in other fields also
with respect to the retention of their position in the global market along with
enhancing the rate of FDIs (Rothaermel, 2015).
Recommendations for Kuwaiti government
The major concerns for every country’s government is to adopt strategies for enhancing
their performance in the global market, empowering their citizens with appropriate
knowledge to match up with the international standards, generating employment
opportunities for the local citizens in relation with making them capable enough to get
standard basic life standard (Shapiro, 2013). Following are the strategies which could be

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adopted by the Kuwaiti government for enhancing the capacity of their industries in terms
of encouraging innovation in the business industries:
 Promoting creativity and innovation: This is the best measure through which an
organization, industry or the whole country could move towards sustainable
growth and development. With regards to this, it is recommended to the Kuwaiti
government to encourage innovation and creativity amongst their citizens by
providing all the available resources in order to make them think out of the box.
This will not lead to generate new ideas which could be used for the objective of
development of secondary industries in terms of enhancing country’s productivity
as well as to retain the interest of multinationals in the country (Hsu, Tian & Xu,
2014).
 Removal of unclear laws: Kuwait’s laws and regulations are considered bit old
and the major reason behind this is still ruled under monarchy system. Thus, there
are sundry rules and regulations which not only put barriers in the growth of the
organization in the international market but it also affects the whole business
industry of the country, thus, these rules and laws required to be abolished in order
to encourage the companies to expand their businesses along with enhancing the
overall country’s performance.
 Development of infrastructure: Infrastructure development is one of the most
effective and appropriate aspect through which one country could easily target big
multinationals in terms of setting up their business in their country. With the help
of attractive infrastructures, developing countries in Asian region have received
huge FDIs in past few decades and this have been the primary factor for them in
terms of moving towards development at fast pace (Fanack.com, 2018). Thus, it has
been recommended to the Kuwaiti government to invest certain portion of their
earnings towards development of infrastructure as per the requirement of
multinational corporations in order to attract FDIs from different parts of the
globe. This factor will also lead to generate various employment opportunities for
the local citizens and it will ultimately enhance the GDP and national income of
Kuwait (Laeven, Levine & Michalopoulos, 2015).

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 Providing subsidies for the new start-ups: Promoting start-ups has become a
trend in the international market. Under this system, entrepreneurs come up with
new business ideas along with the blueprint of the overall business plan. Further,
funding is raised in the market by searching appropriate investors by explaining
them the idea of business. In relation to this, it has been recommended to the
government to promote start-ups and ensure them the minimum investment which
will be provided from the government in order to encourage and motivate them
towards generation of more new business ideas. The more new business ideas will
be, the more country will move towards sustainable growth and overall
development.

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References
Delgado, M., Porter, M.E. and Stern, S., 2015. Defining clusters of related industries. Journal
of Economic Geography, 16(1), pp.1-38.
Fanack.com. 2018. Infrastructure [online]. Available at:
https://fanack.com/kuwait/economy/ [30/10/2018].
Grant, R.M., 1991. Porter's ‘competitive advantage of nations’: an assessment. Strategic
management journal, 12(7), pp.535-548.
Hsu, P.H., Tian, X. and Xu, Y., 2014. Financial development and innovation: Cross-country
evidence. Journal of Financial Economics, 112(1), pp.116-135.
International Trade Administration. 2017. Kuwait - 1-Openness to & Restriction on Foreign
Investment [online]. Available at: https://www.export.gov/article?id=Kuwait-Openness-
to-Foreign-Investment [30/10/2018].
Laeven, L., Levine, R. and Michalopoulos, S., 2015. Financial innovation and endogenous
growth. Journal of Financial Intermediation, 24(1), pp.1-24.
Porter, M.E., 2000. Location, competition, and economic development: Local clusters in a
global economy. Economic development quarterly, 14(1), pp.15-34.
Rossi, E., 2015. Modulating the sensitivity to syntactic factors in production: Evidence from
syntactic priming in agrammatism. Applied Psycholinguistics, 36(3), pp.639-669.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Shapiro, G. 2013. Six Ways to Create Economic Growth [online]. Available at:
https://www.forbes.com/sites/garyshapiro/2013/01/23/six-ways-to-create-economic-
growth/#2beb39bb7e32 [30/10/2018].

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Smit, A.J., 2010. The competitive advantage of nations: is Porter’s Diamond Framework a
new theory that explains the international competitiveness of countries?. Southern African
Business Review, 14(1).
Vizer, L.M. and Sears, A., 2017. Efficacy of personalized models in discriminating high
cognitive demand conditions using text-based interactions. International Journal of Human-
Computer Studies, 104, pp.80-96.