The Porter’ diamond model was described in his book Competitive Advantage of Nations; it’s an economical model theory, where Porter has approached the facts and figures regarding excel of certain corporation in particular and suitable locations. The Porter has practically advanced by relating the four practical factors and the behaviors related to the particular companies excelling in the particular demographic locations and have also established the government’s pro-active attitude towards influencing the particular business (Bruce and Pitts, 1988).
Traditional country advantages
The traditional economic approach of comparing the competitive advantages of the nations included Location, Land, and natural resources including the fuels and minerals, land, population size at particular location and the associated labor with that population. But the economic opportunity of the nation was scarcely affected by such detriment as mentioned above rather they were considered passive in this regard. Porter’s view was quite diverged from this inherited view of factors influencing the opportunities and considered such factors in destabilizing the expected out puts regarding the competitive advantages.
Porter’s Concept of Clusters
The term clusters as perceived by the Porter was associated with the assemblage of interrelated entrepreneurs, the interconnected industries, suppliers and the firms that were coupled with certain demographic location. And in the view of Porter the inclusion of capable labor, a competent technology, strong base of knowledge, the specific culture of the nation and alliance of the government are the factors to be created by the nations.
Diamond diagram of Porter
The factors associated with the national and competitive advantages were explained by the Porter in his well renowned diamond shaped diagram. The diamond here is representing the area of national play for the industrial sector development and betterment keeping in view the international demands and the world economic scenario. Porter’s diamond model explains the four detriments which he found significant to be incorporated in the economical affairs to get the maximum outputs. The four corners of the Diamond Model as explained in the diamond theory are accessing the factor conditions, incorporating the demand conditions, critically analyzing the effects of associated and supporting industries and working logically and wisely upon the firm’s structural strategy, management and rivalry.
The factor conditions are most precisely related to the condition of the associated inputs delivering the estimated productions that input may be in the form of natural resources, infrastructure, technology, labor and the related. According to Porter such factors should not be mixed up with those of the inherited ones with reference to the standard economical theory. The capital owned by the company, its labor strength and the associated infrastructure are the advanced condition factors as reported by porter. The inexpert human source and the raw resources are not included in the key factors and similarly have no impact on the generation of the competitive advantage, as they can be reached at any time by the company. The specialized conditions are however difficult to generate and sustain, especially in the case when the competitive firm have no access to this factor, as they involve heavy investment and surely impacts the competitive advantages. At this instant Porter also emphasize upon the inherent reasons through his model that globally few nations and their associated companies rank high in competition than that of the others of the same caliber because of the political support from the national policies that are in favor of capitalism against the inclination towards the public companies. This very support of the government and its policies plays very important role in gathering the revenues as well the competitive advantages in every sector.
More precisely the factor conditions actually refer to the resources that can be subjugated by the other companies present with in the country. The factor conditions once established become advantageous for not only the present situation of the company but also that of the future security because once they are established, they only need to be enhanced. The company excelling solutions are totally dependent on the establishment of the human resource, which is ignored in mot of the circumstances, where the companies seem defected and prone to further imbalances. The basic as well as advanced factor conditions include verbal communication capacity of workforce, extraordinary skills of the workforce and the capital investment on the raw material.
As discussed earlier in the context, the nation is the entity that gathers the advanced factors related to human resources and the technological excellence and if the required factors are already in access then the efforts should be vested upon the up gradation to reach the certain criteria of ambition attainment. The innovation techniques are to be deployed timely after accessing the local disadvantages, as this leads to the comparable advantage.
2. Demand Conditions
It’s the practical phenomenon that the production of the local markets increase commendably when the local product demand increases in comparison with the foreign production. When the foreign product consumption declines, there is an automatic up burst of the local exporting companies in the global scenario increasing the global competitiveness. This would develop the home market demand owing to the innovative approaches imopr9oving the product quality to stand in the competitive scenario. In case of Japan, the home production and extreme home demand of the products estimates the success of electronic market there.
According to the Porter the national advantage is the outcome of increasing demand of the home market and the local market helps in a way by changing the trends to be comparable with the global innovations and the trends being followed there.
3. Associated and supporting Industries
The estimation of the nation’s entrepreneurs towards success is accompanied with the competition of the local market. The innovation of cost effective methods, and innovative products is very much dependent upon the competition of the local supportive suppliers and industries ultimately promoting the ever greatest competition experience with in national firms. Italian shoe industry is famous in the entire world and it would be very just to quote it here. The success of this Italian industry owes to its competitive standing to the couple of related national industries and firms that popularized it around the globe.
The competition that is experienced with in the local markets boosts up the trends setting, innovations, and the balanced merchandizing costs. The local competition creates a certain type of pressure that keeps the industrialists, suppliers and retailers in a proper balance and harmony.
4. Firm Structural Strategy, Management and Rivalry
The global presence of the entrepreneur is possible because of its strong infrastructure and management that definitely guides the competitive path to be followed up by the country. In case of local excel the company’s hierarchy plays the basic role as the strategic advancement of the compatible people in engineering and technology sector improves the production state pf the company; such phenomenon of hierarchy is seen in German companies. Some industries such as that of design and Biochemistry have organic strategies that help them grow in the proper pace. The global competitive advantage is achieved only when the local market rivalry increases credibly, the companies that can withstand rivalry could preferably establish on the international level. If the competition with in the local market is not defined then there would be a difficulty in managing the nation’s position with in the stable global economies, giving roots to other defined problems.
The Porter’s diamond model provides the strength to business strategic manager, to look upon and decide wisely that which factors are present with in their local market and then may decide the key factor to be taken along for the global propulsion of their business empire and indeed their nation. The same process can be followed from top to bottom in the reverse order to analyze the international demands first and then visualizing them in the local market for their exploitation to enter into the internationalization scenario. This approach also helps in accessing the required local factors that could support the international demands to achieve to raise the national market globally. The ultimate assistance that the Porter’s diamond model can provide is the decision of capital investments that which part of the globe would be safe to invest and get the double returns and which would not be suitable for investment.
The firm’s strategy is altered directly or indirectly by the local conditions being experienced by the entrepreneur in the particular time period. The strategic shift may be because the interference of the state’s policies with in the firm along with the local competitors and the rivals in case of leading away from the required advantage.
The Porter’s Diamond model and theory is universally applied and is readily accepted for its beneficial properties. The four factors of the theory have specifically associated significance with them, which really have very prolific impacts on the national as well as international business economics. The economic models should be very critically evaluated and judged before the implementation of it on any company or entrepreneur, as all the factors may or may not be suitable for specific type of company economics.
1. Traill, Bruce; Eamonn Pitts (1998). Competitiveness in the Food Industry. Porter (1990, p. 127). Springer. p. 19.
2. Pitts. E.,Connel.L., B. McCarthy. The Competitiveness Of The Irish Food Processing Industry. Eagasc. ISBN 1 84170 250
3. Traill, Bruce; Eamonn Pitts (1998). Competitiveness in the Food Industry. Springer. pp. 301. ISBN 0751404314.