Diamond Model: Porter
Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book The Competitive Advantage of Nations. This model of determining factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale.

Focuses on four central aspects of the home base, which Porter views as the determinants of competitive advantage

Factor conditions
Demand conditions
Related and supporting industries
Firm strategy, structure, and rivalry

Main argument: “Nations are most likely to succeed in industries or industry segments where the national ‘diamond’ is most favorable”

Factor Conditions
§Porter considers labor, land, natural resources, and physical capital to be basic factors that are largely inherited
§More important from Porter’s point of view are advanced factors that are created which include
•Sophisticated infrastructure
•Labor educated and trained in very specific ways
•Focused research institutions
§Porter also makes a distinction between
•Generalized factors—can be used in a number of different industries
•Specialized factors—tailored for use in specific industries
Demand conditions
§Stresses three aspects in the home base
•Demand composition
¨Sophisticated, demanding, and anticipatory (anticipates trends in global demand) home demand contributes to firms’ success
•Demand size and pattern of growth
¨Large, rapidly-growing, and early home demand are positive aspects of the home base
•Degree of internationalization
¨The more home demand is synchronized with international demand trends, the more it contributes to firms’ competitiveness
Related and supporting industries
§Supplying industries in the home base has several advantages in downstream industries
•Efficient, early, rapid, and sometimes preferential access to the most cost-effective inputs
•Ongoing coordination
•Innovation and upgrading
§A competitive domestic supplier industry is better than relying on well-qualified foreign suppliers
Firm strategy, structure, and rivalry
§One country differs from another with regard to managerial systems and philosophies and with regard to capital markets
§Institutional environments that allow firms to take a long-term view contribute positively to competitiveness
§Presence of a large number of competing firms or rivals in the domestic industry
•Competition among firms is necessary for allocative efficiency in a market system, but domestic rivalry contributes to dynamic, technological efficiency

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