The document discusses Michael Porter's Diamond Model, which analyzes the competitive advantages of nations and industries. The model identifies four key attributes that determine national advantage: factor conditions, related and supporting industries, demand conditions, and firm strategy/rivalry. It provides an example analysis of the mobile telecommunications industry using the Diamond Model framework. The model can help organizations identify national-level factors that build advantages and inform internationalization strategies.

1. Porter Diamond Model
This article explains the Porter Diamond Model, developed by strategy
guru Michael Porter in a practical way, including an example and a free
downloadable template. Afterreading you will understand the basics of this
powerful strategy and competitive advantage analysis tool.
What is the Porter Diamond Model?
The American strategy professor Michael Porter developed an economic
model for (small-sized) businesses to help them understand their
competitive position in global markets. This Porter Diamond Model, also
known as the Porter Diamond theory of National Advantage or Porters
double diamond model, has been given this name because all factors
that are important in global business competition resemble the points of a
diamond. Michael Porter assumes that the competitiveness of businesses
is related to the performance of other businesses. Furthermore, other
factors are tied together in the value-added chain in a long distance relation
or a local or regional context.
Porter Diamond Model clusters
Michael Porter uses the concept of clusters of identical product groups in
which there is considerable competitive pressure. Businesses within
clusters usually stimulate each other to increase productivity, foster
innovation and improve business results. Companies operating in such
clusters work according to Porter Diamond Model.
In addition, they have the advantage that they can move very well on the
international market and that they can maintain their presence and handle
international competition. Examples of large clusters are the Swiss watch
industry and the Hollywood film industry.

2. International advantage
Organisations can use the Porter Diamond Model to establish how they can
translate national advantages into international advantages. The Porter
Diamond Model suggests that the national home base of an organization
plays an important role in the creation of advantages on a global scale.
This home base provides basic factors that support an organization,
including government support but they can also hinder it from building
advantages in global competition. The determinants that Michael Porter
distinguishes are:
1. Factor Conditions

3. This is the situation in a country relating to production factors like
knowledge and infrastructure. These are relevant factors for
competitiveness in particular industries. These factors can be grouped into
material resources- human resources (labour costs, qualifications and
commitment) – knowledge resources and infrastructure. But they also
include factors like quality of research or liquidity on stock markets and
natural resources like climate, minerals, oil and these could be reasons for
creating an international competitive position.
2. Related and supporting Industries
The success of a market also depends on the presence of suppliers and
related industries within a region. Competitive suppliers reinforce
innovation and internationalization. Besidessuppliers,related organizations
are of importance too. If an organization is successful this could be
beneficial for related or supporting organizations. They can benefit from
each other’s know-how and encourage each other by producing
complementary products.
3. Home Demand Conditions
In this determinant the key question is: What reasons are there for a
successfulmarket? What is the nature of the market and what is the market
size? There always exists an interaction between economies of scale,
transportation costs and the size of the home market. If a producer can
realize sufficient economies of scale, this will offer advantages to other
companies to service the market from a single location. In addition the
question can be asked: what impact does this have on the pace and
direction of innovation and product development?
4. Strategy, Structure and Rivalry
This factor is related to the way in which an organization is organized and
managed, its corporate objectives and the measure of rivalry within its own
organizational culture. The Furthermore, it focuses on the conditions in a
country that determine where a company will be established. Cultural
aspects play an important role in this. Regions, provinces and countries
may differ greatly from one another and factors like management, working
morale and interactions between companies are shaped differently in
different cultures. This could provide both advantages and disadvantages
for companies in a certain situation when setting up a company in another

4. country. According to Michael Porter domestic rivalry and the continuous
search for competitive advantage within a nation can help organizations
achieve advantages on an international scale. In addition to the above-
mentioned determinants Michael Porter also mentions factors like
Government and chance events that influence competition between
companies.
5. Government
Governments can play a powerful role in encouraging the development of
industries and companies both at home and abroad. Governments finance
and construct infrastructure (roads, airports) and invest in education and
healthcare. Moreover, they can encourage companies to use alternative
energy or alternative environmental systems that affect production. This
can be effected by granting subsidies or other financial incentives.
6. Chance events
Michael Porter also indicates that in most markets chance plays an
important role. This provides opportunities for innovative companies that
are not afraid to start up new operations. Entrepreneurs usually start their
companies in their homeland, without this having any economic
advantages, whereas a similar start abroad would provide more
opportunities.
Porter Diamond Model example
A few business analysts set-up a case about Mobile telecommunication.
Demand conditions
 Evolving mobile possibilities in relation with Internet.
 Growing number of mobile owners. Mobile usage becomes cheaper
and cheaper so it accessible for everybody.
 Upcoming online businesses including App builders.
 Government of county x stimulates Mobile Market regulation.
Factors endowments
 Government of county x puts continuous efforts in IT policies.
 IT Workforce is developing and growing.

5.  Level of Education on mobile and Internet technology is high.
 County x has geographical IT advantages.
Related and supporting industry
 This country is leading in the microchip market.
 There are two countries that are trading partners.
 The government is planning to invest in Mobile R&D and IT
development.
 County x is leading in all Mobile & IT related production.
Firm strategy and structure
 Venture firms with high IT technology.
 Firm and small and medium size IT business companies.
 Market competition in Mobile telecommunication.
 Target niche market by continuous development and improvement of
Mobile technology.
Advantages
By using the Porter Diamond Model, an organization may identify what
factors can build advantages at a national level. The Porter diamond model
is therefore often used during internationalisation efforts. Michael Porter is
of the opinion that all factors are decisive for the competitiveness of a
company with respect to their foreign competitors. By considering these
factors a company will be better able to formulate a strategic goal.
Porter’s Diamond – Determining Factors of National Advantage
Increasingly, corporate strategies have to be seen in a global context. Even
if an organization does not plan to import or to export directly, management
has to look at an international business environment, in which actions of
competitors, buyers, sellers, new entrants of providers of substitutes may
influence the domestic market. Information technology is reinforcing this
trend.
Michael Porter introduced a model that allows analyzing why some nations
are more competitive than others are, and why some industries within
nations are more competitive than others are, in his book The Competitive
Advantage of Nations. This model of determining factors of national

6. advantage has become known as Porters Diamond. It suggests that the
national home base of an organization plays an important role in shaping
the extent to which it is likely to achieve advantage on a global scale. This
home base provides basic factors, which support or hinder organizations
from building advantages in global competition. Porter distinguishes four
determinants:
Factor Conditions
The situation in a country regarding production factors, like skilled labor,
infrastructure, etc., which are relevant for competition in particular
industries. These factors can be grouped into human resources
(qualification level, cost of labor, commitment etc.), material resources
(natural resources, vegetation, space etc.), knowledge resources, capital
resources, and infrastructure. They also include factors like quality of
research on universities, deregulation of labor markets, or liquidity of
national stock markets. These national factors often provide initial
advantages, which are subsequently built upon. Each country has its own
particular set of factor conditions; hence, in each country will develop those
industries for which the particular set of factor conditions is optimal.
This explains the existence of so-called low-cost-countries (low costs of
labor), agricultural countries (large countries with fertile soil), or the start-up
culture in the United States (well developed venture capital market). Porter

7. points out that these factors are not necessarily nature-made or inherited.
They may develop and change. Political initiatives, technological progress
or socio-cultural changes, for instance, may shape national factor
conditions. A good example is the discussion on the ethics of genetic
engineering and cloning that will influence knowledge capital in this field in
North America and Europe.
One internationally successful industry may lead to advantages in other
related or supporting industries. Competitive supplying industries will
reinforce innovation and internationalization in industries at later stages in
the value system. Besides suppliers, related industries are of importance.
These are industries that can use and coordinate particular activities in the
value chain together, or that are concerned with complementary products
(e.g. hardware and software). A typical example is the shoe and leather
industry in Italy. Italy is not only successful with shoes and leather, but with
related products and services such as leather working machinery, design,
etc.
Home Demand Conditions
Describesthe state of home demand for products and services produced in
a country. Home demand conditions influence the shaping of particular
factor conditions. They have impact on the pace and direction of innovation
and product development. According to Porter, home demand is
determined by three major characteristics: their mixture (the mix of
customers needs and wants), their scope and growth rate, and the
mechanisms that transmit domestic preferences to foreign markets. Porter
states that a country can achieve national advantages in an industry or
market segment, if home demand provides clearer and earlier signals of
demand trends to domesticsuppliers than to foreigncompetitors. Normally,
home markets have a much higher influence on an organization's ability to
recognize customers’ needs than foreign markets do.
Related and Supporting Industries
The existence or non-existence of internationally competitive supplying
industries and supporting industries. One internationally successfulindustry
may lead to advantages in other related or supporting industries.
Competitive supplying industries will reinforce innovation and

8. internationalization in industries at later stages in the value system.
Besides suppliers, related industries are of importance. These are
industries that can use and coordinate particular activities in the value
chain together, or that are concerned with complementary products (e.g.
hardware and software).
A typical example is the shoe and leather industry in Italy. Italy is not only
successful with shoes and leather, but with related products and services
such as leather working machinery, design, etc.
Firm Strategy, Structure, and Rivalry
The conditions in a country that determine how companies are established,
are organized and are managed, and that determine the characteristics of
domestic competition Here, cultural aspects play an important role. In
different nations, factors like management structures, working morale, or
interactions between companies are shaped differently.
This will provide advantages and disadvantages for particular industries.
Typical corporate objectives in relation to patterns of commitment among
workforce are of special importance. They are heavily influenced by
structures of ownership and control. Family-business based industries that
are dominated by owner-managers will behave differently than publicly
quoted companies. Porter argues that domestic rivalry and the search for
competitive advantage within a nation can help provide organizations with
bases for achieving such advantage on a more global scale.
Porters Diamond has been used in various ways
Organizations may use the model to identify the extent to which they can
build on homebased advantages to create competitive advantage in
relation to others on a global front. On national level, governments can (and
should) consider the policies that they should follow to establish national
advantages, which enable industries in their country to develop a
strong competitive position globally. According to Porter, governments can
foster such advantages by ensuring high expectations of product
performance, safety or environmental standards, or encouraging vertical
co-operation between suppliers and buyers on a domestic level etc.