Competitive Advantage of Nations by Michael Porter

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Does Porter’s ‘Diamond’ concept convincingly explain the achievements of major national business systems, or are their weaknesses, theoretically and empirically, in his arguments?

In The Competitive Advantage of Nations, which was published in 1990, Michael Porter – who has dedicated most of his career to studying businesses and how they can develop a competitive advantage (Competitive Strategy, 1985) – the author offers a theoretical framework, which outlines the underlining factors that contribute to national competitiveness. Michael Porter’s work was met with contrasted views. While some academics praised the model for its wealth of information and the convenient framework it generated (Greenway, 1993), many other academics in
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(Porter, 1990) In addition, nations can achieve global competitiveness by focusing primarily on the industrial sectors, which present the best chances of success rather than attempting to become champions in all industries and ultimately displaying disappointing results (Porter, 1990)

In order to formalize the complex relationship, which exist between nations and their respective industrial sectors, Michael Porter developed the Diamond model, which is comprised of four main elements that contribute to the competitive advantage of countries in a given industrial sector: factor conditions, demand conditions, related and supporting industries, and firm strategy structure and rivalry. (Porter, 1990) To better illustrate the underlying factors that form the diamond model, we will use the extended example of the German auto industry.

Figure 1: The “Diamond Model”

Figure 1: Porter’s Diamond Model, Porter, 1990

Factor Conditions:

According to Porter these conditions can be further divided into two groups: basic factors i.e. land, labor and capital, and advanced factors i.e. technological capabilities, and managerial expertise. (Porter, 1990) The latter are the most valuable production factors in today’s knowledge economy, and are not inherited by nations but rather the result of a focused effort by nations. (Porter , 1990)
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