Porter's diamond

Question 1

What is Porter’s diamond?

Answer 1

Can be used to explain why some nations have a competitive advantage in certain industries

Question 2

What are the 4 determinants of national competitive advantage?

Answer 2

• Demand conditions
• Related and supporting industry
• Factor conditions
• Strategy, structure and rivalry

Question 3

Explain demand conditions

Answer 3

• demanding local consumers force firms to become more innovative
• Trend setting local consumers help local producers to anticipate future global trends.
• e.g. German drivers demanded powerful cars from German car manufacturers

Question 4

Explain related and supporting industries

Answer 4

Proximity of related and supporting industries leads to:

• Easy access to components, with reduced lead times and carriage costs.
• Encourages knowledge sharing which increases innovation.
• e.g. The finance sector in the UK is aided by large accountancy and legal firms

Question 5

Explain factor conditions

Answer 5

• The availability of the factors or production (the resources needed to operate).
• These include human resources, physical resources, knowledge, capital, infrastructure.
• e.g. French wine industry benefits from being able to grow good quality grapes

Question 6

Explain strategy, structure and rivalry

Answer 6

Two key possible advantages:

• Strong domestic rivalry forces local firms to become more efficient to survive.
• The strategies or structures that have become prevalent in a particular nation may give advantages in particular industries.
• e.g. flat, decentralised organisation structures are popular in Japan and are believed to encourage innovation