Michael Porter developed Porter’s Diamond, also known as The Diamond Model, in 1990 in his book ‘The Competitive Advantage of Nations’. The four determinants of Porter’s diamond must operate as a system rather than individually. It provides the answers to ‘Why does nation achieve international success in a particular industry?’ (Porter, 1998:71). Despite the universal application of Porter’s diamond framework, many critics argued that the model is flawed. This essay aims to discuss the different critiques drawn to the diamond network. Firstly, an overview of Porter’s Diamond model will be entailed. Thereafter, focus will be on the many criticisms of the model. For example, many criticized the lack of consideration of the influence of the government and the role of chance in the nation. Some also critique on the inaptness of the framework to small economies, while others comment on the lack of historical perspective of the framework and lastly, the neglecting of national culture in the framework.
Porter’s Diamond Model
The Diamond Model (figure 1) outlines the ‘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 they 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 the nation’s 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 are 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...
