The Porter Diamond

A competitive firm can choose from a

number of trade, contractual, and
investment modes of foreign market entry
Why can a particular firm in a particular
home country develop and maintain its
competitiveness as it moves through the
trade, contractual, and investment modes of
globalization?
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The Porter Diamond

Porter introduced a diagramthe Porter diamond
that has become very well known
Focuses on four central aspects of the home base,
which Porter views as the determinants of
competitive advantage
Factor conditions
Demand conditions
Related and supporting industries
Firm strategy, structure, and rivalry
Main argument: Nations are most likely to succeed
in industries or industry segments where the national
diamond is most favorable
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Porter Model

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Porter Diamond
Factor conditions
Porter considers labor, land, natural resources, and
physical capital to be basic factors that are largely
inherited.
More important from Porters point of view are
advanced factors that are created which include
Sophisticated infrastructure
Labor educated and trained in very specific ways
Focused research institutions
Porter also makes a distinction between
Generalized factorscan be used in a number of
different industries
Specialized factorstailored for use in specific
industries
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 Demand conditions
Stresses three aspects in the home base
Demand composition
Sophisticated, demanding, and anticipatory
(anticipates trends in global demand) home
demand contributes to firms success
Demand size and pattern of growth
Large, rapidly-growing, and early home
demand are positive aspects of the home base
Degree of internationalization
The more home demand is synchronized with
international demand trends, the more it
contributes to firms competitiveness
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 Related and supporting industries

Supplying industries in the home base has
several advantages in downstream industries
Efficient, early, rapid, and sometimes
preferential access to the most cost-effective
inputs
Ongoing coordination
Innovation and upgrading
A competitive domestic supplier industry is
better than relying on well-qualified foreign
suppliers
NAVNEET GERA

 Firm strategy, structure, and rivalry

One country differs from another with regard to
managerial systems and philosophies and with
regard to capital markets
Institutional environments that allow firms to take
a long-term view contribute positively to
competitiveness
Presence of a large number of competing firms or
rivals in the domestic industry
Competition among firms is necessary for
allocative efficiency in a market system, but
domestic rivalry contributes to dynamic,
technological efficiency
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 Most important Interactionsall related to rivalry

Domestic rivalsparticularly when clustered in
a geographic regioncontribute to the creation
of factors
Especially specialized, advanced factors
A group of domestic rivals contribute to the
presence of specialized and sophisticated
suppliers
Rivalry among domestic firms producing
differentiated products enlarges home demand
and makes it more sophisticated
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Interaction in the Porter Model

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PORTERS DIAMOND OF
NATIONAL ADVANTAGE
PORTERS MODEL AS APPLIED IN INDIA

DR NAVNEET
Copyright 2005 by The McGraw-Hill Companies, Inc. All
rights reserved.

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