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Porters Diamond of competitive advantage

Porters Diamond of competitive advantage

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Published by Sakina Basha

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Published by: Sakina Basha on Oct 06, 2010
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National Competitiveness

Competitive Advantage of Nations

.Porter's Diamond of National Advantage  Porter argued that 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.

 Nations are most likely to succeed in industries or industry segments where the national µdiamond¶ is most favorable. This diamond represents the national playing field that countries establish for their industries. .Porter's Diamond of National Advantage  He used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage.

The Porter Diamond .

Factor Conditions  A country creates its own important factors such as skilled resources and technological base.  Local disadvantages in factors of production force innovation. Adverse conditions such as labor shortages or scarce raw materials force firms to develop new methods. . Such innovation often leads to a national comparative advantage.  The stock of factors at a given time is less important than the extent that they are upgraded and deployed.

but it needn't be so. There is a curious phenomenon that economists call the resource curse .The Resource Curse Joseph E Stiglitz ‡ For some nations.so named because. . on average. natural resources are a curse . countries with large endowments of natural resources perform worse than countries less well endowed.

The Resource Curse Joseph E Stiglitz ‡ Yet some countries with abundant natural resources do perform better than others. and some have done well. Why is the spell of the resource curse cast so unequally? .

.  A strong.Demand Conditions  A more demanding local market leads to national advantage. trend-setting local market helps local firms anticipate global trends.

. firms enjoy more cost effective and innovative inputs.  This effect is strengthened when the suppliers themselves are strong global competitors.Related and Supporting Industries  When local supporting industries are competitive.

. For example. High local rivalry results in less global rivalry. .  In the long run more local rivalry is better since it puts pressure on firms to innovate and improve. Italian companies tend to be smaller and are run more like extended families. Structure.Firm Strategy. and Rivalry  Local conditions affect firm strategy. German companies tend to be hierarchical.

For example. factor disadvantages will not lead firms to innovate unless there is sufficient rivalry.The Diamond As a System  The effect of one point depends on the others. . For example.  The diamond also is a self-reinforcing system. a high level of rivalry often leads to the formation of unique specialized factors.

for example by enforcing strict product standards.Government's Role  Encourage companies to raise their performance.  Stimulate local rivalry by limiting direct cooperation and enforcing antitrust regulations. .  Focus on specialized factor creation.

Japanese firms achieved dominance in this industry for the following reasons: .Japanese Fax Machine Industry  The Japanese facsimile industry illustrates the diamond of national advantage.

Japanese Factor Conditions  Japan has a relatively high number of electrical engineers per capita. .

.Japanese Demand Conditions:  The Japanese market was very demanding.

good miniaturized components since there is less space in Japan. for example.Related Industries  Large number of related and supporting industries with good technology. .

.Domestic Rivalry  Domestic rivalry in the Japanese fax machine industry pushed innovation and resulted in rapid cost reductions.

Government Support  NTT (the state-owned telecom company) changed its cumbersome approval requirements for each installation to a more general type approval. .

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