Porter’s diamond

Porter’s Diamond is a model used primarily for assessing the potential of a country for any particular business.

The model includes four factors that are essential to competitive advantage in a country.

  1. Firm strategy, structure and rivalry – this relates to how organisations are managed within the industry in this country. The creation of companies and competition is also important under this.
  2. Factor conditions – this refers to the country’s factors of production, which might include labour, natural resources, infrastructure and land.
  3. Demand conditions – this is related to the amount of demand that there is for the services and/or products of an industry within a particular country.
  4. Related and supporting industries – these are the types of industry which are required for any particular industry to operate successfully.

What is it used for?

This model is a framework that is used to compare countries against one another and is used by companies that are considering international expansion. Taking all of the individual areas as a whole, you can consider all the factors that may be important when trying to decide whether to enter a particular country or region. Uses include

  • Understanding levels of resources and skills available in a nation
  • Pinpointing pressure for innovation and investment
  • Identification of potential alliances in a country
  • Change of strategy within a country.

How do I use it?

Porter’s diamond can be used to assess the likelihood of success in a country for an enterprise that is expanding internationally. Competitive advantage in any nation can be analysed using this model. All of the factors are closely interlinked to one another and a good balance of all of these could lead to success. To use it, draw the model out on a piece of paper and consider the following questions for each heading:

Firm strategy, structure and rivalry

  • How are companies structured here? Are they more family-orientated? Hierarchical?

This determines which types of companies are more likely to succeed.

  • Is there local rivalry?

This is considered a good thing, as high local rivalry is thought to make firms more innovative.

Factor conditions

  • Does the country have the skilled workforce required for the industry you are wishing to enter?
  • Is the technology base robust?
  • Are there any unusual techniques that have been developed that could be leveraged for competitive advantage?

Demand conditions

  • Is there a strong local market for your product?

The theory says that if there is a good local market you will have a national advantage.

Related and supporting industries

  • Are local supporting industries competitive?

If so, your company may benefit from lower costs and innovation.

  • Are those industries globally competitive?

If yes, this makes the benefits for your company greater.

What are its limitations?

Limitations of this model include:

  • It does not assess your abilities to succeed in the country – the four characteristics may be strong, but your company may still fail by not taking full advantage of the opportunities that are available.
  • Other factors may influence success – there may be events that could not have been predicted, such as new technological developments or government interventions.

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