One of the many models that Porter introduced to the strategic marketing world is Porter’s diamond which was first published in his book “The competitive advantage of Nations” in 1990. The model has been given this name due to the fact all factors significant in global business competition come together to form a diamond.
Porter’s diamond model helps to analyze and improve a nation’s role on a globally competitive field explain by looking into why one nation is more competitive than another in that particular industry. Porter refers to that nation as the home base.
Porter’s diamond takes a proactive approach to analysis and takes into account four factors that determine national competitive advantage:
1. Firm strategy, structure and rivalry refers the company’s overall strategy and approach to market which is determined by numerous factors such as social, legal, political, technological and environmental factors. This factor looks at the company’s objectives, culture and rivalry and in turn assesses how the firm is organization and managed.
2. Demand conditions refer to the quality and quantity of a product or service that is demanded by the buyers in the home base. Several factors may determine demand conditions such as the market size and growth rate and market saturation. In order for a firm to be able to attain a competitive advantage, strong demand conditions must be present.
3. Related supporting industries refer to the presence or absence of related industries. For instance, having competitive suppliers within the home base can be very cost-effective and efficient for the company due to easier access to inputs and raw materials.
4. Factor conditions refer to the resource mix present on a national level such as infrastructure, human resources and natural resources. Here, both country specific and industry specific factors must be considered.
There are also two extra factors that indirectly influence the diamond and have to be considered:
1. Government includes the policies and procedures of government which can in turn have a significant impact on the above four determinants. Although this factor can help the firm gain a competitive advantage, it cannot create a competitive advantage on its own.
2. Chance events refer to any disruptive events that are outside the control of the company. These might be innovations, wars or new technologies and give new entrants the chance to initiate their operations.
The six factors note above will either promote or hinder a firm’s ability to attain a competitive advantage. By identifying and evaluating where you stand against these factors will guide you to the successful implementation of an international strategic goal. In other words, Porter’s diamond model gives you the insights you need in order to transform a national advantage into an international advantage. This is becoming increasingly important as the levels of globalization and internalization rise higher and higher every year.