Porters Diamond Of National Advantage

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Porters Diamond Of National Advantage

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Porter's Diamond Model Framework

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BCG Perspectives. McKinsey Quarterly. Enduring Ideas: The 7-S Framework. The Academy of Management Executive. The purpose of diversification is usually to reduce portfolio risk. From the four growth strategies it is the most risky one, since the company has no experience in the new market and does not know if the product is going to be successful. Harvard Business Review. Managing Across Borders. The Transnational Solution.

Boston: Harvard Business School Press. The excellent work by Alex Oesterwalder opens the door to companies that need to rethink their business model. Journal of International Business Studies. A systematic approach to analyze your value chain, and identify where to create the greatest value for the customer. Simon and Schuster. The Discipline of Market Leaders. Looking Inside for Competitive Advantage. Academy of Management Executive. Complexity : Low. Theories of Selling. Journal of Applied Psychology. The model is often used by businesses to analyze the external competitive environment. This information can then explain the relative strength of one business against another. It also explains why some industries are more advantageous than others in a particular region.

In the Diamond Model, the answers to these questions are the determinants of competitive advantage. According to the model, there are four factors that determine national competitive advantage. Porter represented these four determinants as a diamond. You can think of the four determinants as being the playing field for the industries of a particular nation. The four determinants are:. These are the major determinants in the model, but they are not the only ones. The model also shows that there are two extra determinants that can influence any or all of the four determinants. Factor conditions refer to the different types of resources that may or may not be present within a nation.

Resources include such things as human resources, capital resources, natural resources, infrastructure, and knowledge resources. To understand the role of factor conditions we need to distinguish between basic and advanced factor conditions. Basic factors include natural resources and unskilled labor. Advanced factors include skilled labor, specialist knowledge, and capital, amongst others. Porter argues that basic factors do not generate competitive advantage as they can be obtained by any company. Only advanced factor conditions can generate competitive advantage. As an example of an advanced factor, MIT produces graduates with very high computing skills. This, in turn, feeds a software competitive advantage for the United States. Another advanced factor for the US is having a large pool of venture capital seeking to invest in technology startups.

This further builds competitive advantage in this industry. The main factor of demand conditions is home market demand. To have a competitive advantage for an industry there must be a strong home market demand for the product or service. In fact, the more demanding home market customers are, the greater the pressure on companies to innovate and improve. These demand conditions create a competitive advantage for that nation over time.

Demand conditions include such factors as market size, market growth rate, and market sophistication. Early home market saturation is another factor which can cause firms to innovate. The presence of internationally competitive suppliers within a nation can be helpful to the companies using those suppliers. This is because it gives cost-effective access to inputs. Alongside this, it gives early access to new products and encourages the rapid sharing of information. Having lots of related industries with a nation often results in new industries. This happens where the related industries can share resources.

For example, car manufacturers in Germany could share access to a wind tunnel. This use of shared resources within a nation can create a competitive advantage, as it increases the barrier to entry.

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