Porter’s Diamond Competitive Advantage of Nations

The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a model that can help understand the competitive position of a nation in global competition. This model can also be used for other major geographic regions.

Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:

A. Land

B. Location

C. Natural resources (minerals, energy)

D. Labor, and

E. Local population size.

Because these factor endowments can hardly be influenced, this fits in a rather passive (inherited) view towards national economic opportunity.

Porter says sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such factors may actually undermine competitive advantage! He introduced a concept of "clusters," or groups of interconnected firms, suppliers, related industries, and institutions that arise in particular locations.

As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a pro-active way by government.

These interlinked advanced factors for Competitive Advantage for countries or regions in Porters Diamond framework are:

1. Firm Strategy, Structure and Rivalry (The world is dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in productivity and innovation)

2. Demand Conditions (The more demanding the customers in an economy, the greater the pressure facing firms to constantly improve their competitiveness via innovative products, through high quality, etc)

3. Related Supporting Industries (Spatial proximity of upstream or downstream industries facilitates the exchange of information and promotes a continuous exchange of ideas and innovations)

4. Factor Conditions (Contrary to conventional wisdom, Porter argues that the "key" factors of production (or specialized factors) are created,