What is Porter Diamond Model?
The "Diamond Model" was proposed by Michael Porter, a well-known strategic management scientist at Harvard Business School in the United States. Different from the famous Porter's Five Forces Analysis, the main purpose of Porter's Diamond Model is to analyze a specific industry from the perspective of a country, and it is also a tool to describe a country's competitive advantage. The prosperity of industries is closely related to the various structures and advantages of a country. This theory is consistent with the concept of country/industry and is one of the famous theories of international trade.
Porter’s diamond model is used to analyze why a certain industry in a country has strong international competitiveness. Porter believes that there are four factors that determine the competitiveness of a certain industry in a country. The diamond model includes four major elements:
Factor conditions - land (including natural resources), capital, labor force, labor education level, national infrastructure quality, etc. Some of these factors are natural factors, and some are places where the government can play a role.
Demand conditions - whether the domestic market is large enough. The first goal of most companies is to focus on meeting the needs of the domestic market. If the domestic market is small, it is difficult for the company to develop new products.
Firm Strategy, Structure and Rivalry - Domestic competition helps to improve international competitiveness because it forces companies to develop unique and sustainable advantages and capabilities. The fiercer the domestic competition, in order to maintain a competitive advantage, the enterprise strives to innovate and improve.
Related and supporting industries - For the formation of a country's competitive advantage, related and supportive industries and advantageous industries are a kind of relationship that shares weal and woe. Porter's research reminds people to pay attention to the phenomenon of "industrial clusters", that is, a superior industry does not exist alone, and it must rise together with related domestic strong industries.
These four elements are interrelated and are influenced by two other auxiliary elements, namely chance and government. The element association diagram is shown below.
Chance and Government – 2 auxiliary elements
Chance - Opportunity is more like a change that can be made but cannot be sought. For example, technological innovation, market turmoil, changes in social structure, and even war may be one of these opportunities.
Government - The government should provide resources and environment for enterprises. It can buy, expand infrastructure, and develop natural resources, or issue regulations or incentives to have a positive impact on the companies.
When to use The Porter Diamond Model?
You can take the example of whether apples should move back to the United States. The background to this case is this. When Mr. Trump took over, he planned to use tax policies to force U.S. businesses to bring manufacturing jobs back to the United States. Congress is likely to pass a bill that would impose a 35 percent tariff on imports.
Should Apple back down at this point?
What factors should be considered?
Porter Diamond Model Template
Here is a Porter Diamond Model template created with Visual Paradigm's online strategic analysis tool. You can customize this template by modifying the text, color and font, and use it in your presentations and reports.
