What is the Diamond Model? Description
The Diamond Model of Michael Porter for the competitive advantage of Nations
offers a model that can help understand the comparative position of a nation
in global competition. The model can also be used for major geographic regions.
Traditional country advantages
Traditionally, economic theory mentions the following factors for comparative
advantage for regions or countries:
- Land
- Location
- Natural resources (minerals, energy)
- Labor, and
- Local population size.
Because these 5 factors can hardly be influenced, this fits in a rather
passive (inherited) view regarding national economic opportunity.
Clusters
Porter says that sustained industrial growth has hardly ever been built
on above mentioned basic inherited factors. Abundance of such factors may
actually undermine competitive advantage! He introduces a concept called "clusters"
or groups of interconnected firms, suppliers, related industries, and institutions,
that arise in certain locations.
These clusters are geographic concentrations of interconnected companies,
specialized suppliers, service providers, and associated institutions in a
particular field. They grow on locations where enough resources and competences
amass and reach a critical threshold, giving it a key position in a given
economic branch of activity, with a decisive sustainable competitive advantage
over others places, or even a world supremacy in that field. Porter says clusters
can influence competition in three ways:
- They can increase the productivity of the companies in the cluster.
- They can drive innovation in the field.
- They can stimulate new businesses in the field.
Some well-known examples of Clusters are USA/Silicon Valley (computers),
Netherlands/Rotterdam (logistics), India/Bangalore (software outsourcing),
USA/Hollywood (movies), France/Paris (fashion).
According to Porter, as a rule competitive advantage of nations is the
outcome of 4 interlinked advanced factors and activities in and between companies
in these clusters. These can be influenced in a pro-active way by government.
 Interlinked
advanced factors for Competitive Advantage
- The Strategy, Structure and Rivalry of Firms. The world is dominated
by dynamic conditions. Direct competition impels firms to work for increases
in productivity and innovation.
- Demand Conditions. If the customers in an economy are very demanding,
the pressure facing firms to constantly improve their competitiveness via
innovative products, through high quality, etc, will be greater.
- Related Supporting Industries. Spatial proximity of upstream
or downstream industries facilitates the exchange of information and promotes
a continuous exchange of ideas and innovations.
- Factor Conditions. Contrary to conventional wisdom, Porter argues
that the "key" factors of production (or specialized factors) are created,
not inherited. Specialized factors of production are skilled labor, capital
and infrastructure. "Non-key" factors or general use factors, such as unskilled
labor and raw materials, can be obtained by any company and, hence, do not
generate sustained competitive advantage. However, specialized factors involve
heavy, sustained investment. They are more difficult to duplicate. This
creates a competitive advantage, because if other firms cannot easily duplicate
these factors, they are valuable.
The role of government in the Diamond Model of Porter
The role of government in the Diamond Model of Porter is to act as a catalyst
and challenger; it is to encourage - or even push - companies to raise their
aspirations and move to higher levels of competitive performance. They must
encourage companies to raise their performance, to stimulate early demand
for advanced products, to focus on specialized factor creation and to stimulate
local rivalry by limiting direct cooperation and enforcing anti-trust regulations.
The competitive advantage of nations
Porter introduced this model in his book: "The Competitive Advantage of
Nations", after having done research in ten leading trading nations. The book
was the first theory of competitiveness based on the causes of the productivity
with which companies compete. Instead of traditional comparative advantages
such as natural resources and pools of labor. This book should be considered
obligatory reading for government economic strategists. It is also highly
recommended for corporate strategists that are interested in the macro-economic
environment of corporations.
Book: Michael Porter
- The Competitive Advantage of Nations -
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 How to Integrate the Cluster in the Company?
It is said that clusters are a tool to incorporate new links in the supply chain. What are the steps to make a good clustering in the industry? And in what way can we establish such new links into the production chain?...
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Diamond Model versus WTO (World Trade Organisation)
Liberalization of barriers to trade impacts the viability of the Diamond Model especially for emerging market countries or weak countries in terms of bargaining power in trade negotiations.
I think the model works better for powerful nati...
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Flower Industry in Kenya
Can someone help me with more information in regards to the Kenyan flower industry and how it is interlinked with the diamond model....
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The Contribution of Government
I think that the contribution of government depends on the nature of economy. In a liberal economy like the USA the contribution of government is eliminated. In Tunisia the Diamond model was used to ameliorate the competitiveness of the agriculture a...
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Ugly Side of Nigerian Business
Organisations are more concerned with being seen as productive and how large the profits are than ensuring overall national productive efficiency. Clusters are not existent and cut throat competition is the name of the game. Basically when a nation l...
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Governments' Role in Comparative Advantage
I believe that governments have a very significant role in shaping the competitiveness of the nation through setting up key policies, promoting the right set of values, and providing the appropriate level of capital. For example, the country where ...
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Nation Advantages and Firm's Advantages
How does a firm strategy and structure help to promote the nation advantage against other nations?
I'm being told that when a foreign firm wants to enter a particular country, it has to look if it can take advantage of any present cluster. But, ...
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China's Labor Cost Advantage
Many people believe (as I did) that China has a clear cost advantage in manufacturing from cheap labor. Not so according to Research conducted with funding from the All...
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Membership Organisations
Can a membership organisation be a cluster?
There is a taste in the UK for governmental sponsored clusters to evolve into membership organisations. I would proposes that they cease to be clusters once they formalise this link. Thoughts????...
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Clusters and Knowledge Economy
Put simply, clusters are geographically close groups of interrelated specialized organizations. Two main historic reasons for industrial clusters were: easy knowledge exchange and the availability of skilled labor. I believe the arrival of th...
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Chance in Diamond Model
Porter defines Chance events as the ones that have little to do with circumstances in a nation and are largely outside of the control of firms. Chance events could be significant shifts in exchange rates, wars or decisions taken by foreign government...
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Diamond Model and Clusters Special Interest Group
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Diamond Model and Clusters Education & Events
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 Success Factors of Economic Clusters
Economic clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a nation or region...
![What makes economic clus...
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How can Companies Reinforce and Benefit from Clustering?
1. Create pressures for innovation (if possible leveraging the advantage of the home nation)
2. Seek out the most capable competitors as motivato...
Usage (application): Company Agenda in Clustering
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Clusters in Economically Less Developed Countries (ELDCs)
Studies conducted by UNCTAD (United Nations Conference on Trade and Development) and academics on the role and characteristics of clusters in economic...
Usage (application): Cluster Research, Best Practices of Clustering
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Corporate Social Responsibility and the Diamond Model
Recently, Porter (with Kramer) wrote an article called "Strategy and Society", in which they argue that many Corporate Social Responsibility initiativ...
Usage (application): CSR Strategy
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Clusters Scoreboard
Paper by Andrea Ganzaroli, Gianluca Fiscato and Luciano Pilotti, in which they suggest a scoreboard to assess the competitiveness of clusters in the k...
Usage (application): Clusters competitiveness
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Typologies and Strategies of Co-opetition
Presentation about Co-opetition thereby especially focusing on the typologies and strategies of co-opetition. It includes the following sections:
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Usage (application): Co-opetition, Strategic Partnerships, Strategic Collaboration, Strategic Clusters
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Michael Porter on Competiveness of a Nation
Harvard Professor and Co-leader of the US Competitiveness Project Michael Porter argues competitiveness of a region/nation occurs when:
1. Its bu...
Usage (application): Global Competition, Comparative Advantage, Competition Between Nations and Regions
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Introduction to Collective Impact
Collective Impact is about diverse companies and across sectors are coming together to solve a complex social problem. The efforts have 5 conditions:<...
Usage (application): Initial Understanding of Collective Impact
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Diamond Model Diagram
Download and edit the 12manage PowerPoint model for limited personal, educational and business use.
Republishing in intranets, websites, books, magaz...
Usage (application): Industry Management
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Compare with: Porter Value Chain
| Porter Competitive
Advantage | Porter
Five Forces |
The Value Net, Co-opetition
| Bottom of the
Pyramid | PEST Analysis
| SWOT Analysis |
Simulation |
Benchmarking |
Scenario Planning |
Bricks and Clicks |
Four Trajectories
of Industry Change
Return to Management Hub: Finance & Investing | Knowledge & Intangibles | Strategy
| Supply Chain & Quality
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