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<header
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Porter’s Diamond Model: Why Some Nations Are Competitive And Others Are
Not</h1>
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2018</time><time
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<span
class="tag-links"><i
class="fa fa-tags"></i><a
href="https://www.business-to-you.com/tag/comparative-advantage/"
rel="tag">Comparative Advantage</a>, <a
href="https://www.business-to-you.com/tag/competition/" rel="tag">Competition</a>,
<a
href="https://www.business-to-you.com/tag/competitive-advantage/"
rel="tag">Competitive Advantage</a>, <a
href="https://www.business-to-you.com/tag/competitiveness/"
rel="tag">Competitiveness</a>, <a
href="https://www.business-to-you.com/tag/demand-conditions/" rel="tag">Demand
Conditions</a>, <a
href="https://www.business-to-you.com/tag/diamond-model/" rel="tag">Diamond
Model</a>, <a
href="https://www.business-to-you.com/tag/factor-conditions/" rel="tag">Factor
Conditions</a>, <a
href="https://www.business-to-you.com/tag/firm-strategy-structure-and-rivalry/"
rel="tag">Firm Strategy Structure and Rivalry</a>, <a
href="https://www.business-to-you.com/tag/industry-analysis/" rel="tag">Industry
Analysis</a>, <a
href="https://www.business-to-you.com/tag/location-advantage/" rel="tag">Location
Advantage</a>, <a
href="https://www.business-to-you.com/tag/porter/" rel="tag">Porter</a>, <a
href="https://www.business-to-you.com/tag/related-and-supporting-industries/"
rel="tag">Related and Supporting Industries</a></span></div><div
class="entry-content clearfix"><p
style="text-align: justify;">Michael Porter’s Diamond Model (also known as
the Theory of National Competitive Advantage of Industries) is a diamond-shaped
framework that focuses on explaining <strong>why certain industries within a
particular nation are competitive internationally</strong>, whereas others might
not. And why is it that certain companies in certain countries are capable of
consistent innovation, whereas others might not? Porter argues that any
company’s ability to compete in the international arena is based mainly on an
interrelated set of location advantages that certain industries in different
nations posses, namely: <strong>Firm Strategy, Structure and Rivalry</strong>;
<strong>Factor Conditions</strong>; <strong>Demand Conditions</strong>; and
<strong>Related and Supporting Industries</strong>. If these conditions are
favorable, it forces domestic companies to continiously innovate and upgrade. The
competitiveness that will result from this, is helpful and even necessary when
going internationally and battling the world’s largest competitors. This
article will explain the four main components and include two components that are
often included in this model: the role of the Government and Chance. Together they
form the <strong>national environment</strong> in which companies are born and
learn how to compete.</p><p><img
data-attachment-id="2773" data-permalink="https://www.business-to-you.com/porter-
diamond-model/porters-diamond-model/" data-orig-
file="https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Porters-
Diamond-Model.png?fit=1257%2C1051&ssl=1" data-orig-size="1257,1051" data-
title="Porter’s Diamond Model" data-image-
description="<p>Porter’s Diamond Model of National Competitive
Advantage of Industries</p>
" data-medium-file="https://i1.wp.com/www.business-to-you.com/wp-
content/uploads/2018/06/Porters-Diamond-Model.png?fit=300%2C251&ssl=1" data-
large-file="https://i1.wp.com/www.business-to-you.com/wp-
content/uploads/2018/06/Porters-Diamond-Model.png?fit=800%2C669&ssl=1"
loading="lazy" class=" wp-image-2773 aligncenter jetpack-lazy-image"
src="https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Porters-
Diamond-Model.png?resize=480%2C401&ssl=1" alt="Porter Diamond Model"
width="480" height="401" data-recalc-dims="1" data-lazy-
content/uploads/2018/06/Porters-Diamond-Model.png?resize=1024%2C856&ssl=1
1024w, https://i1.wp.com/www.business-to-you.com/wp-
content/uploads/2018/06/Porters-Diamond-Model.png?resize=300%2C251&ssl=1 300w,
https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Porters-
Diamond-Model.png?resize=768%2C642&ssl=1 768w, https://i1.wp.com/www.business-
to-you.com/wp-content/uploads/2018/06/Porters-Diamond-Model.png?w=1257&ssl=1
1257w" data-lazy-sizes="(max-width: 480px) 100vw, 480px" data-lazy-
Diamond-Model.png?resize=480%2C401&is-pending-load=1#038;ssl=1"
AA7"><noscript><img
diamond-model/porters-diamond-model/" data-orig-
file="https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Porters-
Diamond-Model.png?fit=1257%2C1051&ssl=1" data-orig-size="1257,1051" data-
title="Porter’s Diamond Model" data-image-
description="<p>Porter’s Diamond Model of National Competitive
Advantage of Industries</p>
content/uploads/2018/06/Porters-Diamond-Model.png?fit=300%2C251&ssl=1" data-
content/uploads/2018/06/Porters-Diamond-Model.png?fit=800%2C669&ssl=1"
loading="lazy" class=" wp-image-2773 aligncenter"
Diamond-Model.png?resize=480%2C401&ssl=1" alt="Porter Diamond Model"
width="480" height="401" srcset="https://i1.wp.com/www.business-to-you.com/wp-
content/uploads/2018/06/Porters-Diamond-Model.png?resize=1024%2C856&ssl=1
content/uploads/2018/06/Porters-Diamond-Model.png?resize=300%2C251&ssl=1 300w,
https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Porters-
Diamond-Model.png?resize=768%2C642&ssl=1 768w, https://i1.wp.com/www.business-
to-you.com/wp-content/uploads/2018/06/Porters-Diamond-Model.png?w=1257&ssl=1
1257w" sizes="(max-width: 480px) 100vw, 480px" data-recalc-dims="1"
/></noscript></p><p
style="text-align: center;">Figure 1: Porter’s Diamond Model of National
Competitive Advantage</p><h2><span
style="font-size: 24pt;"><strong>Firm Strategy, Structure and
Rivalry</strong></span></h2><p
style="text-align: justify;">The national context in which companies operate
largely determines how companies are created, organized and managed: it affects
their strategy and how they structure themselves. Moreover, <strong>domestic
rivalry is instrumental to international competitiveness, since it forces companies
to develop unique and sustainable strenghts and capabilities.</strong> The more
intense domestic rivalry is, the more companies are being pushed to innovate and
improve in order to maintain their competitive advantage. In the end, this will
only help companies when entering the international arena. A good example for this
is the Japanese automobile industry with intense rivalry between players such as
Nissan, Honda, Toyota, Suzuki, Mitsubishi and Subaru. Because of their own fierce
domestic competition, they have become able to more easily compete in foreign
markets as well.</p><h2><span
style="font-size: 24pt;"><strong>Factor Conditions</strong></span></h2><p
style="text-align: justify;">Factor conditions in a certain country refer to the
natural, capital and human resources available. Some countries are for example very
rich in natural resources such as oil for example (Saudi Arabia). This explains why
Saudi Arabia is one of the largest exporters of oil worldwide. With human
resources, we mean <strong>created factor conditions</strong> such as a skilled
labor force, good infrastructure and a scientific knowlegde base. Porter argues
that especially these ‘created’ factor conditions are important opposed
to ‘natural’ factor conditions that are already present. It is
important that these <em>created</em> factor conditions are continiously upgraded
through the development of skills and the creation of new
knowledge. <strong>Competitive advantage results from the presence of world-
class institutions that first create specialized factors and then continually work
to upgrade them.</strong> Nations thus succeed in industries where they are
particularly good at <em>factor creation</em>.</p><h2><span
style="font-size: 24pt;"><strong>Demand Conditions</strong></span></h2><p
style="text-align: justify;">The home demand largely affects how favorable
industries within a certain nation are. A larger market means more challenges, but
also creates opportunities to grow and become better as a company. <strong>The
presence of sophisticated demand conditions from local customers also pushes
companies to grow, innovate and improve quality.</strong> Striving to satisfy a
demanding domestic market propels companies to scale new heights and possibly gain
early insights into the future needs of customers across borders. Nations thus gain
competitive advantage in industries where the local customers give companies a
clearer or earlier picture of emerging buyer needs, and where demanding customers
pressure companies to innovate faster and achieve more sustainable competitive
advantages than their foreign rivals.</p><h2><span
style="font-size: 24pt;"><strong>Related and Supporting
Industries</strong></span></h2><p
style="text-align: justify;">The presence of related and supporting industries
provides the foundation on which the focal industry can excel. As we have seen
with the <span
style="color: #ff6600;"><a
style="color: #ff6600;" href="https://www.business-to-you.com/value-net/">Value
Net</a></span>, companies are often dependent on alliances and partnerships with
other companies in order to create additional value for customers and become more
competitive. <strong>Especially suppliers are crucial to enhancing innovation
through more efficient and higher-quality inputs, timely feedback and short lines
of communication.</strong> A nation’s companies benefit most when these
suppliers themselves are, in fact, global competitors. It can often take years (or
even decades) of hard work and investments to create strong related and supporting
industries that assist domestic companies to become globally competitive. However,
once these factors are in place, the entire region or nation can often benefit from
its presence. We can for example see this in Silicon Valley, where all kinds of
tech-giants and tech-start-ups are clustered in order to share ideas and stimulate
innovation.</p><h2><span
style="font-size: 24pt;"><strong>Government</strong></span></h2><p
style="text-align: justify;">The role of the government in Porter’s Diamond
Model is described as both ‘<em>a catalyst and challenger</em>‘. Porter
doesn’t believe in a free market where the government leaves everything in
the economy up to ‘the invisible hand’. However, Porter doesn’t
see the government as an <em>essential</em> helper and supporter of industries
either. Governments cannot create competitive industries; only companies can do
that. Rather, <strong>governments should encourage and push companies to raise
their aspirations and move to even higher levels of competitiveness.</strong> This
can be done by stimulating early demand for advanced products (demand factors);
focusing on specialized factor creations such as infrastructure, the education
system and the health sector (factor conditions); promoting domestic rivalry by
enforcing anti-trust laws; and encouraging change. The government can thus assist
the development of the four aforementioned factors in the way that should benefit
the industries in a certain country.</p><h2><span
style="font-size: 24pt;"><strong>Chance</strong></span></h2><p
style="text-align: justify;">Even though Porter originally didn’t write
anything about <em>chance</em> or <em>luck</em> in his papers, the role of chance
is often included in the Diamond Model as the likelihood that external events such
as war and natural disasters can negatively affect or benefit a country or
industry. However, it also includes random events such as where and when
fundamental scientific breakthroughs occur. These events are beyond the control of
the government or individual companies. For instance, the heightened border
security, resulting from the September 11 terrorist attacks on the US undermined
import traffic volumes from Mexico, which has had a large impact on Mexican
exporters. <strong>The discontinuities created by chance may lead to advantages for
some and disadvantages for other companies.</strong> Some firms may gain
competitive positions, while others may lose. While these factors cannot be
changed, they should at least be monitored so you can make decisions as necessary
to adapt to changing market conditions.</p><p><img
diamond-model/diamond-model-factors/" data-orig-
file="https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Diamond-
Model-Factors.png?fit=1274%2C720&ssl=1" data-orig-size="1274,720" data-
title="Diamond Model Factors" data-image-description="<p>Chance Firm Strategy
Structure Rivalry Factor Conditions Demand Conditions Related and Supporting
Industries Government</p>
content/uploads/2018/06/Diamond-Model-Factors.png?fit=300%2C170&ssl=1" data-
content/uploads/2018/06/Diamond-Model-Factors.png?fit=800%2C452&ssl=1"
loading="lazy" class=" wp-image-2809 aligncenter jetpack-lazy-image"
src="https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Diamond-
Model-Factors.png?resize=694%2C392&ssl=1" alt="Porter Diamond Model Factors"
width="694" height="392" data-recalc-dims="1" data-lazy-
content/uploads/2018/06/Diamond-Model-Factors.png?resize=1024%2C579&ssl=1
content/uploads/2018/06/Diamond-Model-Factors.png?resize=300%2C170&ssl=1 300w,
https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Diamond-Model-
Factors.png?resize=768%2C434&ssl=1 768w, https://i1.wp.com/www.business-to-
you.com/wp-content/uploads/2018/06/Diamond-Model-Factors.png?w=1274&ssl=1
1274w" data-lazy-sizes="(max-width: 694px) 100vw, 694px" data-lazy-
Model-Factors.png?resize=694%2C392&is-pending-load=1#038;ssl=1"
AA7"><noscript><img
diamond-model/diamond-model-factors/" data-orig-
file="https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Diamond-
Model-Factors.png?fit=1274%2C720&ssl=1" data-orig-size="1274,720" data-
title="Diamond Model Factors" data-image-description="<p>Chance Firm Strategy
Structure Rivalry Factor Conditions Demand Conditions Related and Supporting
Industries Government</p>
content/uploads/2018/06/Diamond-Model-Factors.png?fit=300%2C170&ssl=1" data-
content/uploads/2018/06/Diamond-Model-Factors.png?fit=800%2C452&ssl=1"
loading="lazy" class=" wp-image-2809 aligncenter"
Model-Factors.png?resize=694%2C392&ssl=1" alt="Porter Diamond Model Factors"
width="694" height="392" srcset="https://i1.wp.com/www.business-to-you.com/wp-
content/uploads/2018/06/Diamond-Model-Factors.png?resize=1024%2C579&ssl=1
content/uploads/2018/06/Diamond-Model-Factors.png?resize=300%2C170&ssl=1 300w,
https://i1.wp.com/www.business-to-you.com/wp-content/uploads/2018/06/Diamond-Model-
Factors.png?resize=768%2C434&ssl=1 768w, https://i1.wp.com/www.business-to-
you.com/wp-content/uploads/2018/06/Diamond-Model-Factors.png?w=1274&ssl=1
1274w" sizes="(max-width: 694px) 100vw, 694px" data-recalc-dims="1"
/></noscript></p><p
style="text-align: center;">Figure 2: Porter’s Diamond Model
factors</p><h2><span
style="font-size: 24pt;"><strong>Porter Diamond Model In Sum</strong></span></h2><p
style="text-align: justify;">Porter’s Diamond Model of National Advantage
explains why some industries in some countries are so much more developed and
competitive compared to industries elsewhere on the planet. It basically sums up
the location advantages that Dunning is referring to in his <span
style="color: #ff6600;">Eclectic paradigm</span> (also known as <span
style="color: #ff6600;" href="https://www.business-to-you.com/choosing-the-right-
entry-mode-strategy/">OLI framework</a></span>). The Diamond Model could therefore
be used when analyzing foreign markets for potential entry or when making Foreign
Direct Investment decisions. It is adviced to also conduct a macro-environment
analysis and an industry analysis by using <span
style="color: #ff6600;" href="https://www.business-to-you.com/scanning-the-
environment-pestel-analysis/">PESTEL Analysis</a></span> and <span
style="color: #ff6600;" href="https://www.business-to-you.com/porters-five-
forces/">Porter’s Five Forces</a></span> respectively.</p><h4><strong>Further
Reading:</strong></h4><ul><li>Porter, M.E. (1990). The Competitive Advantage Of
Nations. Harvard Business Review</li><li>Grant, R.M. (1991). Porter’s
Competitive Advantage Of Nations: An Assesement. Strategic Management
Journal</li><li>Smit, A.J. (2010). The Competitive Advantage Of Nations: Is
Porter’s Diamond Framework A New Theory That Explains The International
Competitiveness Of Countries? Southern African Business Review</li><li><a
href="https://hbr.org/1990/03/the-competitive-advantage-of-nations" target="_blank"
rel="noopener noreferrer">Harvard Business Review: https://hbr.org/1990/03/the-
competitive-advantage-of-nations</a></li></ul><p><iframe
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