he approach looks at clusters, a number of small 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 than those of competitors.[2]

Related and supporting industries can produce inputs that 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 constitute 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

Criticism
In his famous book, The Competitive Advantage of Nations, Porter studied eight developed
countries and two newly industrialized countries (NICs). The latter two are Korea and Singapore.
Porter is quite optimistic about the future of the Korean economy. He argues that Korea may well
reach true advanced status in the next decade (p. 383). In contrast, Porter is less optimistic about

Singapore. In his view, Singapore will remain a factor-driven economy (p. 566) which reflects an
early stage of economic development. Since the publication of Porter's work, however, Singapore
has been more successful than Korea. This difference in performance raises important questions
regarding the validity of Porter's diamond model of a nation's competitiveness.
Porter has used the diamond model when consulting with the governments of Canada[4] and New
Zealand.[5] While the variables of Porter's diamond model are useful terms of reference when
analysing a nation's competitiveness, a weakness of Porter's work is his exclusive focus on the
'home base' concept. In the case of Canada, Porter did not adequately consider the nature of
multinational activities.[6] In the case of New Zealand, the Porter model could not explain the
success of export-dependent and resource-based industries.[7] Therefore, applications of Porter's
home-based diamond require careful consideration and appropriate modification.
In Porter's single home-based diamond approach, a firm's capabilities to tap into the location
advantages of other nations are viewed as very limited. Rugman[8] has demonstrated that a much
more relevant concept prevails in small, open economies, namely the 'double diamond' model.
For example, in the case of Canada, an integrated North American diamond (including both
Canada and the United States), not just a Canadian one, is more relevant. The double diamond
model, developed by Rugman and D'Cruz,[9] suggests that managers build upon both domestic
and foreign diamonds to become globally competitive in terms of survival, profitability, and
growth. While the Rugman and D'Cruz North American diamond framework fits well for Canada
and New Zealand, it does not carry over to all other small nations, including Korea and
Singapore.