Porter’s Diamond
Term of the Day - 26 February 2024
Today’s Term is “Porter’s Diamond”.
Porter's Diamond, proposed by economist Michael Porter, is a framework that explains why certain countries or regions become more competitive in specific industries. The model suggests that a nation's competitiveness in a particular industry is influenced by four (4) interrelated factors, often represented as facets of a diamond:
Factor Conditions: Refers to a nation's endowment of factors of production, such as skilled labour, natural resources, infrastructure, and capital. The quality, quantity, and efficiency of these factors contribute to a nation's competitive advantage in certain industries.
Demand Conditions: Reflects the nature and size of domestic demand for goods and services. Sophisticated and demanding local consumers can drive innovation and quality improvements, enhancing a nation's competitive advantage.
Related and Supporting Industries: The presence of strong local suppliers, industries, and support services can foster innovation, efficiency, and competitiveness within an industry's value chain.
Firm Strategy, Structure, and Rivalry: Refers to the conditions governing how companies are organized, managed, and compete within a nation. Intense domestic competition can spur firms to innovate, invest, and improve productivity.
Porter's Diamond emphasizes the interconnectedness and mutual reinforcement of these four factors in shaping a nation's competitive advantage in specific industries, providing insights into strategies for economic development and industrial policy.
