Porter's Diamond Model of National Competitive Advantage is a framework that explains why certain industries in some countries are more competitive and successful than those in other countries. The model was developed by Michael Porter, a leading scholar in the field of business strategy.
The model is based on four interconnected factors, which are often referred to as "diamonds". These factors are:
- Factor conditions: This refers to the resources that a country has, such as labor, natural resources, and infrastructure. These resources can either be basic or advanced. Basic resources include a country's natural resources and unskilled labor, while advanced resources include skilled labor, technology, and infrastructure.
- Demand conditions: This refers to the characteristics of a country's domestic market, including its size, growth rate, and sophistication. A large and growing domestic market can create opportunities for firms to innovate and develop new products and services.
- Related and supporting industries/Complementors: This refers to the presence of strong and competitive industries that are related to the focal industry. For example, a strong steel industry can support the growth of a strong automotive industry.
- Competitive Intensity in focal industry: This refers to the competitive environment within a country, including the level of competition between firms, the level of government support for industry, and the quality of business infrastructure.
According to Porter's model, these four factors interact with each other to create a system of national competitive advantage. A country with strong factor conditions, demanding domestic customers, supportive related industries, and a competitive business environment is more likely to have successful and competitive industries.
Multinational enterprise strategies
When it comes to operating in an international context, there is no one size fits all approach, different business models need different international strategies, not only based on their offerings, but also on the market they are looking to operate in.
Global Standardisation Strategy: is appropriate when a company wants to establish a consistent brand image and messaging across different countries and cultures, and operates in industries where customers have similar needs and preferences across different regions.
Transnational Strategy: is appropriate when a company operates in diverse markets, faces intense competition, and wants to achieve both global standardisation and local adaptation. It combines the benefits of standardisation and customisation, allowing businesses to achieve economies of scale while being responsive to local customer demands.
International Strategy: is appropriate when a company wants to expand operations to foreign markets with tailored products and services, while maintaining a centralised structure at the headquarters. It's suitable for industries with moderate global competition and clear growth opportunities abroad, but requires balancing the need for local adaptation with global standardisation.
Localisation Strategy: is appropriate when a company operates in highly diverse markets with distinct cultural and language differences and wants to customise products and services to meet local customer preferences. It's suitable for industries with high competition and varying customer preferences, but can be challenging to achieve economies of scale and maintain a consistent brand image.
