Diamond Model

The Porter diamond[1]

The Diamond Model is an economical model developed by Michael Porter in his book The
Competitive Advantage of Nations, where he published his theory of why particular industries
become competitive in particular locations.[2]

Porter analysis
The approach looks at clusters of industries, where the competitiveness of one company is
related to the performance of other companies and other factors tied together in the value-added
chain, in customer-client relation, or in a local or regional contexts.[2] The Porter analysis was
made in two steps.[2] First, clusters of successful industries have been mapped in 10 important
trading nations.[2] In the second, the history of competition in particular industries is examined to
clarify the dynamic process by which competitive advantage was created.[2] The second step in
Porter's analysis deals with the dynamic process by which competitive advantage is created.[2]
The basic method in these studies is historical analysis.[2] The phenomena that are analysed are
classified into six broad factors incorporated into the Porter diamond, which has become a key
tool for the analysis of competitiveness:

Factor conditions are human resources, physical resources, knowledge resources, capital
resources and infrastructure.[2] Specialized resources are often specific for an industry and
important for its competitiveness.[2] Specific resources can be created to compensate for
factor disadvantages.
Demand conditions in the home market can help companies create a competitive
advantage, when sophisticated home market buyers pressure firms to innovate faster and
to create more advanced products that those of competitors.[2]
Related and supporting industries can produce inputs which are important for
innovation and internationalization.[2] These industries provide cost-effective inputs, but
 they also participate in the upgrading process, thus stimulating other companies in the
chain to innovate.[2]
Firm strategy, structure and rivalry constitutes the fourth determinant of
competitiveness.[2] The way in which companies are created, set goals and are managed is
important for success.[2] But the presence of intense rivalry in the home base is also
important; it creates pressure to innovate in order to upgrade competitiveness.[2]
Government can influence each of the above four determinants of competitiveness.[2]
Clearly government can influence the supply conditions of key production factors,
demand conditions in the home market, and competition between firms.[2] Government
interventions can occur at local, regional, national or supranational level.[2]
Chance events are occurrences that are outside of control of a firm.[2] They are important
because they create discontinuities in which some gain competitive positions and some
lose.[2]

The Porter thesis is that these factors interact with each other to create conditions where
innovation and improved competitiveness occurs.[2]

See also
Internationalization

References
1. ^ Traill, Bruce; Eamonn Pitts (1998). Competitiveness in the Food Industry. Porter (1990,
p. 127). Springer. p. 19. ISBN 0751404314. http://books.google.com/books?id=-
g_iw4ocyAgC&printsec=frontcover#PPA19,M1.
2. ^ a b c d e f g h i j k l m n o p q r s t u Traill, Bruce; Eamonn Pitts (1998). Competitiveness in the
Food Industry. Springer. pp. 301. ISBN 0751404314. http://books.google.com/books?id=-
g_iw4ocyAgC&printsec=frontcover#PPA17,M1.

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