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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, not inherited. Specialized factors of production are
skilled labor, capital and infrastructure. "Non-key" factors or
general use factors, such as unskilled labor and raw materials, can
be obtained by any company and, hence, do not generate sustained
competitive advantage. However, specialized factors involve heavy,
sustained investment. They are more difficult to duplicate. This leads
to a competitive advantage, because if other firms cannot easily
duplicate these factors, they are valuable).
The role of government in
Porter's Diamond Model is "acting as a catalyst and challenger; it is to
encourage - or even push - companies to raise their aspirations and move
to higher levels of competitive performance …" . They must
encourage companies to raise their performance, stimulate early demand
for advanced products, focus on specialized factor creation and to
stimulate local rivalry by limiting direct cooperation and enforcing
anti-trust regulations.
Porter introduced this model in his
book: The Competitive Advantage of Nations, after having done
research in ten leading trading nations. The book was the first theory
of competitiveness based on the causes of the productivity with which
companies compete instead of traditional comparative advantages such as
natural resources and pools of labor. This book is considered required reading for government
economic strategists and is also highly
recommended for corporate strategist taking an interest in the
macro-economic environment of corporations.
Compare also:
Porter Value Chain |
Porter Competitive
Advantage |
Porter Five Forces |
PEST Analysis |
SWOT analysis |
Simulation |
Benchmarking |
Scenario Planning |
Bricks and Clicks |
Four
Trajectories of Industry Change
More management models
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