Porter's Diamond Essay

638 words - 3 pages

Porter’s Diamond, also known as The Diamond Model, was developed by Michael Porter in 1990 in his book ‘The Competitive Advantage of Nations’. The Diamond Model (figure 1) outlines ‘four broad attributes of a nation that shape the environment in which local firms compete that promote or impede the creation of competitive advantage’ (Porter, 1998:71). It helps to understand the competitive position of nation in global competition. The four determinants of national advantage are 1) factor conditions, 2) demand conditions, 3) related and supporting industries and 4) firm strategy, structure and rivalry.

Figure 1: Porter’s Diamond (Adapted from Porter, 1990)

Factor conditions refers to factors of production; the inputs that are necessary to compete in any industry, these include labor, land, natural resources, capital and infrastructure (Porter, 1998). One nation’s endowment of factors plays an important role in the competitive advantage of the nation. A firm can gain competitive advantage if the can gain access to and retain low-cost or relatively high quality of factors of production in one particular industry (Porter, 1998). He also states that these factors can be upgraded or deployed over time to meet demands. For example, Switzerland is a multicultural country, containing French, Italian, and German speaking regions; it has the advantage with the ability to deal with investors from different countries, which is particularly useful in banking and trading industries.

Demand conditions is the nature of home demand of the nation for the industry’s product or service. Porter outlined three important attributes of demand conditions: the composition of home demand, the size and pattern of growth of home demand, and the mechanisms by which a nation’s domestic preferences are transmitted to foreign markets. Porter also argues that the quality of home demand conditions is far more important than the quantity of home demand conditions. However, demand condition cannot be assessed alone; it is also dependent on other determinants of the diamond.

Related and supporting industries is ‘the presence in the nation of supplier...

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