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Porter's Diamond Theory

Porter’s Diamond Theory ( The Diamond – Four Determinants of National Competitive Advantage)

Four attributes of a nation comprise  Porter’s Diamond of national advantage. They are:

  • Factor conditions
  • Demand conditions
  • Related and supporting industries, and firm strategy, structure and rivalry firms Strategy , Structure and Rivalry

Factor conditions (i.e. the nation’s position in factors of production, such as skilled labour and infrastructure)

  • Factor conditions refers to inputs used as factors of production – such as labour, land, natural resources, capital and infrastructure.
  • This sounds similar to standard economic theory, but Porter argues that the “key” factors of production (or specialized factors) are created, not inherited.
  • Specialized factors of production are skilled labour, capital and infrastructure.
  • Factor conditions refers to inputs used as factors of production – such as labour, land, natural resources, capital and infrastructure.
  • This sounds similar to standard economic theory, but Porter argues that the “key” factors of production (or specialized factors) are created, not inherited.

Specialized factors of production are skilled labour, capital and infrastructure.
 

“Non-key” factors or general use factors, such as unskilled labour 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 leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable


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