Porter’s Diamond Model

10 May 2020,
Kathmandu, Nepal.

Porter’s Diamond Model

Porter’s Diamond Model helps to answer the following questions:

• Why does a nation become the home base for successful international competitors in an industry? {China - consumer electronics and Germany - Automobile}
• Why are firms based in a particular nation able to create and sustain sustainable competitive advantage against the best competitors?
• Why is one country often the home of so many of an industry’s world leaders?

So, for all these questions porter proposed a new model as determinants of competitive advantage. It was expressed in the form of diamond so it is called porter’s diamond model.

Factor Condition:

• Physical resources such as minerals, land, infrastructure and weather.
• Human resources such as skills, motivation, labour laws and labour price.
• Capital 

As per Porter, the countries which lacked some factors were forced to innovate to overcome these problems. Example: Japanese firms were incurring high energy costs and were forced to innovate efficient products and processes.

Demand Condition:

• Demand for the product and services was high within the home country.
• Demand in home country was the determinant for the industry to innovate because of the perception and response to buyers needs.
• If domestic markets were compliant it was a disadvantage for innovation.

Relating and supporting industries:

Success was also dependent on relating and supporting industries. India’s superiority in its steel industry is supported by related industries such as chemicals, manufacturing industries and mines. 

Firms strategy, structure and rivalry:

Organisational ownership determines the organisational  goals. Quoted companies usually have a short-span to deliver results as investors demand better returns quickly whereas its a bit different in unquoted companies.

Porter found that domestic competition was crucial for innovation and for developing competitive advantage. In contrast, countries with monopolies have not been able to gain competitive advantage despite regulatory support from local governments.

References:
- Various sources