Supporting Industries The individual points on the diamond and the diamond as a whole affect four ingredients that lead to a national comparative advantage.
He developed a framework to explain the success of certain industries and how that contributes to the prosperity of a nation.
Concept of National Competitiveness The concept of National Competitiveness has been in public debate for a long time. However, Reinert explains that although in the theory of neoclassical economics, all economic activities are alike in the sense that they are equally good for a nation.
That is not the case in reality as some industry will produce industry rents such as higher profits, higher wages and higher taxable income. It is thus through the appropriation of such industry rents that the context of National Competitiveness is studied Reinert, It is hoped that dynamic industries can create rent for the nation and the spillover effects of having these industries can be of high value to the home country Gray, It is through such economic growth that the welfare of a nation and the standard Disadvantages of porter s diamond model grant living for its citizens can be improved.
Although prominent economists such as Paul Krugman has argued that the concept of National Competitiveness is unfounded due to the fact that countries do not compete with each other the way companies do and that competitiveness has been used by political parties to push through tough policies, there is no doubt that competitiveness is a key issue and priority for many policy makers around the world.
Countries such as Ireland and Singapore has created Competitive Councils while in Costa Rica, competitiveness is part of the national mission Ketels, The Competitive Advantage of Nations.
He was able to take certain knowledge of industrial economics and bridge them with the views of business strategy. Porter felt the competitiveness of a company was determined by the return on invested capital but for countries, competitiveness means productivity measured by value, not volume.
Grant mentioned that a depreciating dollar help the US become more competitive But Porter Snowdon and Stonehouse, disagrees that declining currency values makes a country more competitive, rather the falling wages within that economy signals a lack of competitiveness. Therefore the ultimate determinant of the productivity of the economy is the productivity of the firms within that economy.
What makes firms productive is the sophistication of the firms themselves, how they compete, and also the business environment within which the firms compete. In his work The Competitive Advantage of Nations Porter,he sought to look at the business environment which can help firms to achieve successively higher levels of achievement and productivity.
He identified four main elements which formed the Diamond. Below is a brief overview of the four main elements and others: Factor Conditions Factors can be basic or advanced, generalized or specialized. A sustainable competitive advantage in a particular industry is created by specialized and advanced factors such as a specific technology for that industry.
Basic and generalized factors are easily replicated and usually inherited not created such as cheap raw materials. A lack of basic resources may force a company to innovate and upgrade while an abundance of basic resources may lead firms to become complacent and inefficient. Demand Conditions The nature of home demand is the key to global success.
It is not the size of the home demand but rather its character that makes the difference. Sophisticated and demanding home buyers helps the firm to see an early picture of buyer needs and satisfying those needs improves the firm competitiveness globally.
A small domestic demand may in fact drive firms to explore foreign markets and pursue a global strategy to overcome any deficiencies in local demand conditions. Related and Supporting Industries These are industries that share common technologies, inputs, distribution channels, customers or activities, or provide products that are complementary.
World class related industries can be sources of ideas, technology, individuals, while supporting industries often deliver the most cost effective or highest quality input.
All of these can be advantages in international competition. Close working relationships creates a quick and constant flow of information and a continuing exchange of ideas and innovations between suppliers and end users. Nations are typically competitive in industries where clusters of related and supporting industries are geographically concentrated, making the interactions closer and more dynamic.
It is difficult to have the same level of interaction with foreign companies. The birth and upgrading of new firms and industries that occur in clusters of local industries are less likely to occur if the nation relies heavily on foreign-supplier and related industries.
The social and political environment tends to have a distinct impact on the kinds of industries in which a nation favors. Nations will probably succeed in industries where the strategies, structures and practices favored by the national environment are well suited to competition in the industry.
Local rivals provide a powerful stimulus to the creation and persistence of competitive advantage as local rivalries often goes beyond just business competition to become personal.
The struggle for market share, talented locals and social status makes domestic rivalries intense.Porter's Diamond of National Advantage Classical theories of international trade propose that comparative advantage resides in the factor endowments that a country may be fortunate enough to inherit.
Factor endowments include land, natural resources, labor, and the size of the local population. Porter argued that productivity is the main factor for international competitiveness and that the standard of living of a country’s population can be improved as a direct result of increases in that factor.
Porter’s Diamond Model, which bridges the gap between strategic management and international economies, features a huge progress in the development of management theories (Grant ).
The Porter Diamond Theory strengthens the relationship between corporate strategy and . Sep 23, · This Porter Diamond Model, also known as the Porter Diamond theory of National Advantage or Porters double diamond model, has been given this name because all factors that are important in global business competition resemble the points of a plombier-nemours.coms: The diamond model is an economic 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.
 Afterwards, this model has been expanded by other scholars. Porter's analysis. The approach looks at clusters, a number of small industries, where the competitiveness.
Porter's Competitive Advantage of Nations Due to Porter's training as an economist, he felt it was necessary to understand the competitiveness of nations from a microeconomic approach (Snowdon and Stonehouse, ).