What are demand conditions? Why is the nature of home demand conditions for the firm's or industry's products and services important?

Question

What will be an ideal response?

Answer 1

Demand conditions are the factors that either train firms for world-class competition or that fail to adequately prepare them to compete in the global marketplace. The nature of home demand conditions for the firm's or industry's products and services is important because it determines the rate and nature of improvement and innovation by the firms in the nation. Characteristics of home demand are particularly important to the creation of competitive advantage, which include the composition of home demand, the size and pattern of growth of home demand, rapid home market growth, and the means by which a nation's home demand pulls the nation's products and services into foreign markets. The characteristics of home demand determines how firms perceive, interpret, and respond to buyer needs. Competitive advantage can be achieved when the home demand sets the quality standard and gives local firms a better picture of buyer needs, at an earlier time, than is available to foreign rivals. This advantage is enhanced when home buyers pressure the nation's firms to innovate quickly and frequently. The size and pattern of growth of home demand are important only if the composition of the home demand is sophisticated and anticipates foreign demand. Large home markets offer opportunities to achieve economies of scale and learning while dealing with familiar, comfortable markets. Rapid home market growth is yet another incentive to invest in and adopt new technologies faster, and to build large, efficient facilities. Means by which a nation's products and services are pushed or pulled into foreign countries helps a nation's people and businesses go abroad and then demand the nation's products and services in those second countries. It is the interplay of demand conditions that produces competitive advantage. Of special importance are those conditions that lead to initial and continuing incentives to invest and innovate, and to continuing competition in increasingly sophisticated markets.