What does the phrase factor condition refer to? How can these factors be inherited or created? Describe Porter's categories of factor conditions
What will be an ideal response?
The phrase factor conditions refer to a country's endowment with resources. Factor resources may have been created or inherited. Basic factors may be inherited or created without much difficulty since they can be replicated in other nations and they are not sustainable sources of national advantage. Porter describes five categories of factor conditions: human, physical, knowledge, capital, and infrastructure. The quantity of workers available, the skills possessed by these workers, the wage levels, and the overall work ethic of the workforce together constitute a nation's human resources factor. Countries with a plentiful supply of low-wage workers have an obvious advantage in the production of labor-intensive products. On the other hand, such countries may be at a disadvantage when it comes to the production of sophisticated products which require highly skilled workers capable of working without extensive supervision. The availability, quantity, quality, and cost of land, water, minerals, and other natural resources determine a country's physical resources. A country's size and location are also included in this category. The availability within a nation of significant population having scientific, technical, and market-related knowledge means that the nation is endowed with knowledge resources. The presence of this factor is usually a function of the number of research facilities and universities—both government and private—operating in the country. This factor is important to success in sophisticated products and services. The nation's savings rate, interest rates, tax laws, and government deficit all affect the availability of capital resources. The advantages enjoyed by industries in countries with low capital costs versus those located in nations with relatively high capital costs are sometimes decisive. Firms paying high capital costs are frequently unable to stay in a market where the competition comes from a nation with low capital costs. The firms with the low cost of capital can keep their prices low and force the firms paying high costs to accept low returns on investment or leave the industry. Finally, infrastructure is important, which includes a nation's banking, healthcare, transportation, communication systems as well as the availability and cost of using these systems. More sophisticated industries are more dependent on advanced infrastructure for success. A mix of factors available to the industry determines a nation's competition advantage.
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