The document discusses Porter's Diamond Model for analyzing the competitive advantage of nations. It describes the four determinants of the diamond - factor conditions, demand conditions, related and supporting industries, and firm strategy/rivalry. It explains how these interrelated determinants create a mutually reinforcing system that influences innovation and helps nations develop and sustain competitive advantages in certain industries. The diamond framework can be used to identify sources of competitive advantage and inform government policies to strengthen advantages.

1. Competitive
Advantage of
Nations

2. COMPETITIVE ADVANTAGE OF NATIONS-
Porter’s Diamond Model
Firm strategy,
structure, rivalry
Factor
Condition
Demand
Conditions
Related and
supporting
industries
Chance
Government
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3. DIAMOND FRAMEWORK
Key points
❑ The competitive advantage of a nation depends on the international
competitiveness of its firms and the industry within it. However, the national
environment exerts a powerful influence on the competitiveness of the firm
and its industry: it provides a home base within which firm and the industry
develops critical resources and capabilities and key success factors.
❑ Four interrelated factors in a nation are responsible for the competitiveness:
Factor conditions, demand conditions, strategy and rivalry, related and
supporting industries.
❑ For a country to sustain a competitive advantage in a sector/industry over
time requires a dynamic advantage: its firms must broaden and extend the
basis of their advantage through limitation and innovation.
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4. DIAMOND FRAMEWORK
Key points
❑ The impact of the national environment on firm’s competitive advantage is
less about national resources and more about the dynamic conditions that
influence innovation and limitation.
❑ The diamond is a mutually reinforcing system. The effect of one determinant
is contingent on the state of others. Advantages in one determinant can also
create or upgrade advantages in others.
❑ Competitive advantage based on one or two determinants is possible in
natura resources-dependent industries or undifferentiated industries. Such
advantage usually is unsustainable(except location/climate advantages)
❑ Advantages through the diamond are necessary for achieving and sustaining
competitive advantage.
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5. DIAMOND FRAMEWORK
Key points
❑ The diamond is a mutually reinforcing system. The effect of one determinant
is contingent on the state of others. Advantages in one determinant can also
create or upgrade advantages in others.
❑ Competitive advantage based on one or two determinants is possible in
natura resources-dependent industries or undifferentiated industries. Such
advantage usually is unsustainable(except location/climate advantages)
❑ Advantages through the diamond are necessary for achieving and sustaining
competitive advantage.
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6. USE OF DIAMOND FRAMEWORK
❑ To identify the sources of competitive advantage at
national/regional/industry level.
❑ To formulate global and foreign entry strategies
❑ To locate the geographic locations of operations
❑ To develop effective government policies at local/regional/national level to
reinforce competitive advantage at three levels.
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7. INTERNATIONAL LOCATION DECISIONS
The case of NIKE
R&D and
product design
Manufacturing of
shoe components
Shoe Assembly
Marketing and
distribution
USA
(Internationally competitive in all components of
the diamond, especially on demand conditions.)
South Korea, Taiwan
(International competitive advantage on factor
conditions and related/supporting industries.)
Taiwan, China, Thailand, Malaysia, Philippines
(International competitive advantage on factor
conditions)
Primary North America and Western Europe
(International competitive advantage on strategy,
structure and rivalry and on demand conditions)
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8. DETERMINANTS OF NATION’S
INTERNATIONAL COMPETITIVE ADVANTAGE
1. Factor Conditions: (skills labor, infrastructure, factors of productions, location)
2. Demand Conditions: (The nature of home demand for the industry’s
product/services)
3. Related and Supporting Industries: (The presence of international
competitiveness in supplier/related industries)
4. Firm strategy, Structure and Rivalry: (The conditions how companies are
created, organized, managed and the nature of domestic rivalry in the nation)
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9. TWO ADDITIONAL VARIABLES IN
DETERMINING A NATIONS’S INTERNATIONAL
COMPETITIVE ADVANTAGE IN AN INDUSTRY
5. Chance: ( Factors usually outside the control of nations such as
wars, act of terrorism, natural disasters, oil shocks, significant shifts
in world financial markets, external political development etc.)
6. Government Policy: (Central/regional/local government can
improve or detract from national advantage through poliices on
regulation/de-regulation, legislation, investment policies and
implementation procedures)
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10. FACTORS CONDITIONS-Key characteristics
Possession of low cost or uniquely high-quality factors that are significant for an
industry are sources of competitive advantage in a particular industry. If these
input factors are also industry/nation specific, difficult to transfer, substitute or
imitate, then they become the sources of sustainable competitive advantage.
Competitive advantage from input factors also depends on how effeicently and
effectively they are deployed as well as how nation’s firms mobilize these
factors.
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11. FACTORS CONDITIONS-Key characteristics
Mere availability of input factors is not sufficient to explain competitive success.
Virtually all nations have some attractive input factor pools that have never
been deployed in appropriate industry or have been deployed poorly. Other
determinants in the diamond are also essential to translate input factors
conditions international success. Therefore it is not mere access factors but the
ability to deploy them productively that takes on the central importance
competitive advantage.
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12. FACTOR CONDITIONS-Determinants
INPUT FACTORS
Human Resources : Such as; quality, skill and cost of personnel, work ethics
Physical Resources : The abundance, quality and cost of nation’s land water,
mineral and other deposits, power sources, physical traits, locations, geographic
size, time zone, proximity and position of the country.
Knowledge Resources: Stock scientific, technical and market knowledge bearing
on goods and services. Number, quality and accessibility of nation’s universities,
public/private research institutions, research output, trade associations.
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13. Capital resources
❖ The amount and cost of capital available to finance.
❖ Various forms such as unsecured debt, secured debt, junk(high risk and
high yield) bonds, equity and venture capital.
❖ National rate of savings and the structure of national capital market.
❖ Globalizations of capital market.
Infrastructure Resources
❖The type, quality and user cost of infrastructure
❖Includes communication system, payment or fund transfer, health care,
transportaion
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14. Input factor-Classification-some key points
❑ The most significant and SCA results when a nation possesses specialized and
advanced factors for competing in a particular industry.
❑ The availability and quality of advanced factors determines the sophistication
of competitive advantage.(Difficulty in replicating)
❑ In contrast, competitive advantage based on basic/generalized factors is
unsophisticated and not sustainable.
❑ Advanced and specialized factors should be continuously upgraded to sustain
the com.adv. Due to dyanamic nature of innovation and technology. Today’s
advanced/specialized factors are tomorrow’s basic/generalized factors.
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15. INPUT FACTORS-Classification
BASIC FACTORS
❖Natural resources, climate location,
unskilled labour debt capital.
❖Passively inherited. Requires little
private and social investment.
❖Unsustainable and unimportant
sources of com.adv.
❖Essential in resource-led industries.
ADVANCED FACTORS
❖Digital communications, infrastructure, highly
educated human resources, university research
institutes.
❖Actively created. Requires sophisticated
investment.
❖Sustainable. Important sources of com.adv.
Difficult to acquire or ikitate.
❖Important in igh vaue adding industries software,
genetics, pharmaceuticals. 15

16. INPUT FACTORS-Classification
GENERALIZED FACTORS
❖Input factors available for all
industries.
(Transportation systems, natural
resources, employees with college
education etc)
❖ Available in many nations. Can easily
be nullified easier to replicate or
acquire.
SPECIALIZED FACTORS
❖Input factors that are industry specific.
(Narrowly skilled personnel, infrastructure with
specific properties, employee specific to a
function engineering, chemistry etc)
❖ Provide decisive and sustainable bases for
com.adv.due to scarecity
❖ Requires more focused riskier private and
social investment.
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17. DEMAND CONDITIONS-Determinants
1.Home Demand Composition:
❑ Segment structure of the demand( fragmented/ consolidated- regional/ national/global)
❑ The size of the demand( global national demand size is associated with national
advantage)
❑ Profitability achieved in a segment
❑ Segment range
❑ Sophisticated and Demanding Buyers: More sophisticated and demanding the buyers are,
more is the international advantage. This is because such buyers pressure local firms to
meet standard in product/ service attributes ( Japanese cameras,Belgian chocolate, Italian
shoes etc)
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18. DEMAND CONDITIONS-Cont
❑ Buyers can be demanding due to challenging circumstances (air conditioning in
Japan, anti-corrosive Volvo in Sweden, high taxes leading to small car design in
Europe etc)
❑ Buyers can be demanding due to historical passion towards a product-
gardening equipment in UK, high performance cars in Italy etc)
❑ Anticipatory buyer needs
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19. DEMAND CONDITIONS-Cont
2.Other Demand Characteristics
❑ Rate of growth of home demand
❑ Early home demand(helps local firms to move sooner than foreign rivals to become
internationally competitive -defensive and space industries in USA)
❑ Early Saturation: encourages upgrading, innovation in product services and forces
internationalization-Heineken and beer industry in Holland, Car industry in Japan
3. Internationalization of Domestic Demand
❑ Mobile or Multinational buyers
❑ Foreign buyers in a nation
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20. RELATED AND SUPPORTING INDUSTRIES
Internationally competitive related and supporting industries lead to national
advantage due to
❑ Access to most cost-efficient inputs
❑ Access to the availability of machinery
❑ Process of innovation and upgrading
❑ Proximity of human resources and culture similarity
❑ Sharing activities leading to scale advantages
❑ Availability of complementary products/ services 20

21. FIRM STRATEGY, STRUCTURE AND
RIVARLY
❑Strategy, Structure of Domestic firms
❑Company Goals: short-term/ long term, ownership structure, the role
of shareholders
❑ Individual Goals: attitude to risk taking, wealth etc
❑ Domestic Rivalry leading to Comp.Adv.. Due to
➢ Creating pressure on firms to innovate
➢ Pressure firms to sell abroad to grow
➢ Upgrade the competitive advantage from other determinants
➢ New business formation( products/ markets) in order to escape from rivalry
pressures
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22. DYNAMICS OF NATIONAL ADVANTAGE-
Key Points
• The determinants of national advantage constitute a complex system, yet the system
is an evolutionary one, in which one determinant influences others.
• All the determinants singly or jointly contribute or detracts from national advantage
• Diamond as a system is dynamic, that the beneficial/ detrimental effect of one
determinant often depends on the state of others
• The sources of SCA in a nation grows out of “self reinforcing interaction” among all
( or most) determinants, which is difficult for foreign competitors or nations to
replicate
• The sources of SCA of a nation is due to “causal ambiguity” in that the interplay, self
reinforcement and relationship among determinants are so complex to obscure cause
and effect.
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23. DYNAMICS OF NATIONAL ADVANTAGE-
Key Points
• The diamond system is also constantly in motion. The national industry continually evolves to
reflect changing circumstances or fall into decline.
• In simple or resource intensive industries and in standard lower technology industries, the
FACTOR CONDITIONS can be decisive for national advantage. However, SCA in more
sophisticated industries rarely result from one single determinant
• While nation’s firms may initially draw their competitive advantage from one determinant,
sustaining it will be usually difficult when advantage expands to include others
• While disadvantage in one or two determinants do not prevent a nation gaining competitive
advantage, the most robust competitive advantage tends to be associated with self reinforcing
and mutual dependence in many determinants.
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32. THANK YOU
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