Porter’s Diamond

In business, the competition will bite you if you keep running; if you stand still, they will swallow you.
~William Knudsen

It is impossible to keep talking about sustainability and fair trade without talking about Porter’s diamond model. In this blog I am committed to find new ways to apply economic law to sustainability models, so good social and environmental behavior can makes economic sense, and competition, trade barriers, and supply and demand are part of any economic environment.

Economic growth is linked with economic competitiveness, and there are three different approaches to measure it: the factor model, assessment of trade performance, and assessment of productivity. The first approach identifies critical success areas and compares the performance of different entities/economies in each area; the World Competitiveness Report is a perfect example. The second approach measure efforts to improve the inputs and indicators of outputs. The third approach use cost-based indicators to measure performance.

Professor Michael Porter uses the three approaches in formulating his competitiveness model. For Porter, the key question is why some firms in some nations achieve international success while others fail. He analyses why some industries tend to form clusters (Hollywood, Silicon Valley in USA; Bay Street, Ottawa Valley in Canada) and he conclude that nations do not compete between them, rather, it is the firms within a country than must be competitive.

Porter presents a four-factor model that he calls ‘the diamond’ and asses each component quantitatively and qualitatively:

Porter’s Diamond

Porter includes also two more factors: chance and the impact of government.

Factor conditions are divided between basic (human and physical capital, available general knowledge, infrastructure) and advanced (specialized knowledge). They are also divided between generalized and specialized.

Demand conditions are the market characteristics of a given industry, e.g. large versus small markets, scale economics, and quality of demand of domestic market.

Related and supporting industries are the complex industrial economies, with its network of suppliers integrating the production chains. For Porter, the relation between supplier and company is of capital importance.

Strategy – Structure – Rivalry address the company inner and outer environment. There is no ‘best’ managerial style, but there is a ‘better adapted’ to the company’s circumstances managerial style. Porter stress the importance of strategic goals and the company approach to risk. The domestic rivalry ensures the development of sophisticated and specialized sector; it is only natural that Porter opposes the creation of monopolies, as they inhibit the development of international competitive firms.

Porter believes the Government is not part of the diamond, but has the role of facilitator. He acknowledges that chance is a factor in the development of companies, since war, technological breakthroughs, and other factors can influence the competitiveness of any organization.

We will use this and Porter’s Five Forces Model later analysing Fair Trade and sustainability.


6 Responses to Porter’s Diamond

  1. obesidad morbidadietas para bajar de peso…

    […]Porter’s Diamond « Left with Brain, Right with Heart[…]…

  2. timber lodges…

    […]Porter’s Diamond « Left with Brain, Right with Heart[…]…

  3. social psychology…

    […]Porter’s Diamond « Left with Brain, Right with Heart[…]…

  4. Mongan Funn says:

    Dreamy1 so now we understand to find a VVS2 clarity…
    how about color? Is H really that much better than I?

  5. payday loans says:

    Undeniably imagine that that you stated. Your favourite reason seemed to be on the net the simplest thing
    to be mindful of. I say to you, I definitely get irked even as other people think about
    issues that they plainly do not recognize about.
    You managed to hit the nail upon the top and defined out the
    entire thing without having side-effects , other folks could take a signal.
    Will probably be back to get more. Thanks

  6. I do not know if it’s just me or if perhaps everybody else experiencing problems with your website.

    It appears as though some of the text in your content are running off the screen. Can somebody else please provide feedback and let me know if this is happening
    to them too? This may be a problem with my internet
    browser because I’ve had this happen before. Cheers

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: