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Porter's Diamond

If a strategic plan is going to have any chance of being useful, it has to be based on gathering and analysing information. Michael Porter, has explained how an organisation can analyse:

PESTEL Model: This model looks at the macro-environment, using the following headings
  • Political
  • Economics
  • Social
  • Technological
  • Ecological
  • Legal
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Porter's Diamond

Porter tried to answer the following questions:
  • Why does a nation become the home base for successful international competitors in an industry ? Germany is renowned for car manufacture;
  • Why are firms based in a particular nation able to create and sustain competitive advantage against the world's best competition in a particular field ?
  • Why is one country often the home of so many of an industry's world leader ?
Porter called the answers to these questions the determinants of national competitive advantage. He suggested that there are four main factors which determine national competitive advantage and expressed in the form of diamond.

  • Factor Conditions: Include availability of raw materials and suitable infrastructure.
  • Demand Conditions: The goods or services have to be demanded at home: this starts international success.
  • Related and supporting industries: These allow easy access to components and knowledge sharing.
  • Firm strategy, structure and rivalry: If the home market is very competitive, a company is more likely to become world class.
Examples are:
  • Porter found that countries with factor disadvantages were forced to innovate to overcome problems e.g. Japanese companies experienced high energy costs and were forced to develop energy efficient products and processes that were subsequently demanded everywhere in the world.
  • Sweden's global superiority in its pulp and paper industries is supported by a network of related industries including packaging, chemicals, wood-processing, conveyor systems and truck manufacture. Many of these supporting industries have also achieved leading global positions. ( Indian IT companies and Automotive - Tata Motors are in process of doing so.)

    Mydiamonds UK(Aurum Holdings)

Porter found that domestic competition was vital as a spur to innovation and also enhanced global competitive advantage.

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