Porter Diamond

Porter Diamond is a model that emphasizes the competitive advantage of an industry or business that makes it work better than other competitors in a region or country. Also known as the Porter Diamond Theory of National Advantage, the model explains why certain industries thrive in particular nations. Companies use this model to analyze the competitive environment in foreign markets before entering them.

The model outlines factors that determine the relative strength of entities, which drives them to become better than the rest. Besides some of the attributes that are available and identifiable in the environment itself, businesses have the liberty to create their own strengths to empower their presence and become an entity of national importance.

• Porter Diamond is an economic model describing the factors that give a business an edge over its competitors in a particular region.
• American academician Michael Eugene Porter developed the Porter Diamond model.
• It explains how companies with a national competitive advantage continue to enjoy the same in the international markets too.
• The model is based on a unique framework consisting of four factors— Company Strategy, Structure, and Rivalry; Factor Conditions; Related and Supporting Industries; and Demand Conditions.
• The role of government and chance also impact the competitive advantage of a business.

Porter Diamond Model discusses factors and traits of a business that make it more successful than others in a particular region. It enables companies to identify the resources that need to be developed to enhance their performance compared to the rest of the entities dealing in the same category of products and services.

Michael Eugene Porter, an American academician and influential thinker on management and competitiveness, developed the Porter Diamond model. It is an economic model for businesses, especially multinational organizations planning to expand their operations in different markets. The model lets companies identify the key areas to focus on to capture global markets effectively.

With the help of this theory, the business players can understand the reason for certain industries being widespread in particular nations. On this basis, they can analyze their position in the market and thereby implement strategies to compete and excel.

The Porter Diamond theory outlines four main factors that reveal how businesses enjoy a national advantage in the international markets. These attributes make certain nations become more competitive than others for specific industries. For example, Germany is well known for its engineering, while Greece is famous for the tourism services it offers on a global platform.

The unique Porter Diamond framework consists of four attributes/factors. If all these four factors are favorable, companies will innovate and stay competitive. This domestic competitiveness prepares them to excel in international markets as well. Besides, the role of government and chance or unpredictable external events also influence competitive advantage.

#1 - Company Structure, Rivalry, and Strategy

This aspect of the theory focuses on the competition in the native markets that businesses have to excel against. The region in which the firms operate determines the structure and strategies to be framed to compete in the home market.

As a result, the strategies differ from nation to nation. For example, Italy, known for its fashionable clothing, will definitely have a different approach than Greece, which emphasizes tourism and related facilities.

In addition, rivalry plays an important role in driving every entity operating in the same sector to improve, innovate, and perform better than each other. Therefore, the businesses have to be consistent. This makes them trustworthy and reliable national companies around the globe in the long run.

#2 - Factor Conditions

Factor conditions include resources available to businesses that help them perform well. The availability of resources could be influenced by the skillset, strategies, infrastructure, or nature. For example, Italy performs well because of its ability to choose better fabrics; Greece’s tourism market is influenced by the weather, which might keep changing.

The natural resources constitute the basic factors, while the infrastructure, skilled experts, and capital form the advanced factors. A nation develops a real competitive advantage with the development of advanced elements. In contrast, the contribution of basic factors to regional advantage is comparatively lower.

#3 - Demand Conditions

The demand for a particular product or service also plays an essential factor. Porter Diamond model’s third attribute indicates how the increase in demand for an item among local customer boosts the growth of a brand or business.

When customers want a product, businesses strive to improve the quality and live up to their expectations. As a result, they become competent enough to acquire the number one position on the global platform.

#4 - Supporting and Related Industries

Another factor that influences business growth is the complementary services that lend support to the companies of national advantage. For example, the tourism services in Greece would never be the best if the accommodation facilities and food units over there did not support the industry.

#5 - Government

The government also plays a vital role in developing and retaining the competitive advantage by offering a conducive environment for businesses to flourish. This includes developing a robust infrastructure, ensuring fair market practices, developing education institutions, etc.

#6 - Chance

In addition, chance or luck may also contribute to competitive advantage or disadvantage. For instance, unpredictable events like wars, natural disasters, political situations, etc., can positively or negatively impact an industry or nation, creating a competitive advantage or wiping it off.

Let’s consider the following Porter Diamond model example:

The car manufacturing industry of Germany is one of the best examples to be cited here. The economy’s best sector complies with all the attributes and, therefore, strives through global challenges easily. With several competitors in the home market, car manufacturers continuously innovate and excel. As a result, the nation manages to have the best car models. 

Having no speed limits and an aspiration of citizens to have a quality and speedy life encourages the demand for high-speed luxury cars in the nation. Besides, skilled resources like car engineers from globally-recognized German universities give car manufacturers an edge over others. Thus, the demand conditions and factor conditions are all met.

Next, the support from the metal industries that offer the best spare parts to the car manufacturers tends to be the best support system for the national market. Besides, the German government’s support in the form of better infrastructure and educational institutions creates a national competitive advantage for the car industry.

Porter Diamond model is used to identify the business surroundings and act accordingly to become the best. In 1990, in the book “The Competitive Advantage of Nations,” Porter discussed the role of government in stimulating the competitive positioning of an economy on the global platform.

His model, likewise, suggested the methods through which the businesses can excel, be it by enhancing their skilled labor or deploying advanced technology, or introducing the relevant fiscal policy.

Some of the uses of the Porter Diamond model are as follows:

• It helps businesses understand the structure and techniques of their rival companies, allowing them to frame their strategies accordingly.
• Businesses use regional advantages to capture international markets.
• They value suppliers as they understand the importance of their support.
• Firms of national importance get to know the power of buyers in enhancing business growth.
• The model teaches market players to innovate, remain updated, and put in their best efforts to fight the fear of being substituted.

This has been a guide to What is Porter Diamond Model. Check out the Porter diamond theory, its framework, example & factors resulting in national advantage. You can learn more from the following articles – 

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