Porter's diamond

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.

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.
Factor conditions – this refers to the country’s factors of production, which might include labour, natural resources, infrastructure and land.
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.
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.