Porter’s Diamond Model : Being Local King To An International Titan
Michael Porter’s Diamond Model was first published in his 1990 book, ‘The Competitive Advantage of Nations’, and is a strategic economic model which explains why one nation is more competitive than another in a particular industry. The model suggests how the national home base of an organization can translate national advantages into international benefits.
The four interacting determinants of local advantages are:
- Factor Conditions
Factor conditions can be referred as ‘factors of productions’ that help in the creation of a product or service such as raw materials, land, machinery, labor that help to translate national-level advantages to international market competitive advantages.
We can relate examples here as how the linguistic ability of the Swiss has traditionally provided a significant advantage to their banking industry and how the cheap energy has traditionally provided advantage for the North American aluminium industry.
2. Home Demand Conditions
To gain competitive advantage in the international markets it is very important for a business or an industry to have a very strong home-market demand for its products as dealing with such sophisticated and difficult customers will create pressure to improve and innovate.
For example, America’s long route distances have led to competitive strength in very large truck engines while also sophisticated local customers in France and Italy have helped keep their local fashion industries at the leading edge for many decades.
3. Related & Supporting Industries
Companies are often dependent on their network effects, alliances and strategic partnerships with other companies to create additional value for customers and become more competitive. Local clusters of related and mutually supporting industries can be an important source of competitive advantage.
For example in northern Italy, for example, the leather footwear industry, the leatherworking machinery industry and the design services group together in the same regional cluster to each other’s mutual benefit and also silicon valley forms a cluster of hardware, software, research and venture capital organizations that together create a virtuous circle of high-technology enterprise.
4. Firm Strategy, Industry Structure & Rivalry
The competitiveness of organizations in one country is determined by how they set their strategy and structure themselves. The way firms are structured and set goals differ from nation to nation and can be determined by a multitude of social, political, and legal factors. In many instances, intense rivalry has driven the organization to innovate where German car manufacturers like BMW, Mercedes and VW are great examples.
Some domestic rivalry can actually be an advantage as for example, the Swiss pharmaceuticals industry became strong because each had to compete with several strong local rivals.
