Back to: ECONOMIC ANALYSIS & MONETARY POLICY
Porter Diamond Definition
The Porter Diamond refers to an economic model that aids the understanding of factors that give a group, organization or country a competitive advantage over others. The theory is otherwise called the Porter Diamond Theory of National Advantage, it was developed by Michael Porter in 1990.
The Proter Diamond is a model or framework that explains the competitive advantage that a nation possesses and resources or factors available to them that put them in that position. It also explains ways through which governments than improve the competitive advantage of countries in international environments. Other names for this model are “Porter’s Diamond” and the “Diamond Model.”
Here are some vital points to note about Porter Diamond:
- The Porter Diamond model is a framework that explains the competitive position of a country and factors at the disposal of such a country that gives it such an advantage.
- The Diamond model is also applicable to industries, it explains why certain industries within an economy are globally competitive when compared to others.
- In business, the diamond model explains factors that make a business more competitive than other businesses in the international space.
- The model also highlights how the government can improve the global competitive positions of their countries.
A Little More on What is the Porter Diamond
Before the introduction of the Michael Porter diamond’s model, several theories on global economics posit that the inherent attributes of a country will give it a competitive advantage in the global economic environment. These inherent attributes include natural resources, population size, land, and other primary resources.
In 1990, Michael Porter explained in his book; ‘The competitive Advantage of Nations’ how governments can act as stimulants for the competitive positioning of a country in the global space. The Porter Diamond model suggests ways to improve the competitive advantage of a country, these include skilled labor, a developed technology sector, fiscal policy, and government support, among others.
The Importance of Factor Conditions
The Porter Diamond is also a framework that analyzes the certain factors available to a corporate organization or business that gives it a competitive advantage over other businesses. This framework considers industry-based factors and resource-based factors that the business leverage on. These factors include organizational strategy, structure, and competition.
When used to explain the competitiveness and economic advantage of a country, there are four points theorized in the Porter Diamond Model. These are:
- Firm strategy, structure, and rivalry;
- Related supporting industries;
- Demand conditions; and
- Factor conditions.
According to Michael Porter, these four points or elements determine the competitive advantage of a country or corporation, rather than intrinsic factors such as land, natural resources, skilled Labour and Population.