CandleFocus

Porter Diamond

Candlefocus Editor
The Porter Diamond, otherwise known as the "national diamond model" or the "Porter diamond theory" of international/regional/country advantage, was developed by Harvard professor Michael Porter. He introduced this concept to explain how competition and opportunities work within different nations in the context of industrial organization. The term “diamond” is used because, as implied by the shape, it is supposed to show the structure of interrelated determinants that can contribute to the success of a nation in the international market.

The Porter Diamond looks at the home country of a business as the starting point for their success in the global market, and it highlights four primary cultural and governmental factors that come into play. These four main factors are: (1) Factor conditions, such as the availability of resources, skills, technologies, and infrastructure; (2) Demand conditions, such as the home market’s demand for certain types of products; (3) Related and supporting industries, like the presence of suppliers, and (4) Firm strategy, structure, and rivalry, which looks at the efficiency of businesses in the home market and how competition among companies affects the economy.

The Porter Diamond is divided into two categories: “Localization Advantages” and “Advantage in Globalization.” Factors that contribute to a company’s success within their home market are part of the “Localization Advantages” category. The “Advantage in Globalization” category looks at the firm’s ability to become a global player within the international market. A company must ensure that they have strong factor conditions, demand conditions, related and supporting industries and a strategy that allows them to gain an advantage in the global marketplace.

A nation’s competitive advantage can be enhanced by proactive government policies that strive to build a nation’s capacity for competing effectively in the global market. For example, the government can move to support businesses by providing training and resources to build upon their competitive advantages. Other proactive measures can include grants, subsidies, and research and development (R&D) tax credits, as well as favorable rate structures.

Overall, international businesses can use the Porter Diamond to conquer new markets and strengthen their competitive advantages. By having a good understanding of the determinants of competitive advantage in different countries helps businesses to decide on how and where to invest, how to approach international markets, and the most effective ways to structure their operations.

Glossary Index