The response lies in four broad attributes of a nation, attributesthat separately and as a system create the diamond of national advantage, theplaying field that each nation creates and operates for its industries. Theseattributes are: Factor Conditions, which explains nation’s situation infactors of production, such infrastructure and skilled labor, essential tocompete in a given industry. Demand Conditions, which explains thenature of (home market) demand for the industry’s service or product. Relatedand Supporting Industries, which explains the existence or absence in thenation of provider industries and other related industries that are globallycompetitive.
Firm Strategy, Structure, and Rivalry, which explains theconditions in the nation leading and control how companies are created, managedand organized, as well as the nature of local conflict. FactorConditions. Thesituation in a country on factors of production, such as skilled labor,infrastructure, etc., which are relevant to compete in certain industries.These factors can be classified in human resources (level of qualification,labor cost, commitment, etc.), physical resources (natural resources,vegetation, space, etc.
), knowledge Resources, money resources, andinfrastructure. They also include factors such as the quality of research atuniversities, the deregulation of labor markets, or the fluidness of nationalstock markets. These often provide primary national factors Advantages, whichlater built on. Each country has its own set of factors; hence, each countrywill develop those industries in which a certain set of factors is an optimalfactor. This clarifies the presence of so-called low-cost countries (lowlabor costs), agricultural countries (large countries with rich soil), or aculture of start-up in the United States (the well-developed project capitalmarket). Porter arguments out that these factors are not necessarily made bynature or inherited.
They may evolve and change. Political initiatives, Technological progress or socio-culturalchanges, for example, may constitute the conditions of national factors. A goodexample is Discussion on the ethics of genetic engineering and replicating thatwould affect the knowledge investment in this zone in North America and Europe. An internationally successful industry may lead to benefits inother related industries or subsidies. Competitive supply industries willpromote innovation, improvement and internationalization in industries at laterphases of the value system.
Additionally to suppliers, related industries arealso important. These are industries that can use and coordinate certainactivities in the value chain together, or which concern complementary products(such as hardware and software).A good example is the shoe and leather manufacturing in Italy. Italy is notonly successful with leather and shoes, but with related services and productsfor example leather machines, work, and design. Demand Conditions. It might appear that theglobalization of competition would reduce the importance of home demand.
Inpractice, however, this is simply not the case. In fact, the structure andcharacter of the home market usually has an unequal effect on how companies recognize,understand, and respond to buyer wants and needs. Nations got competitiveadvantage in industries where the home demand gives their companies a cleareror earlier picture of initial buyer needs, and where demanding buyers forcecompanies to renovate faster and achieve more sophisticated competitiveadvantages than their foreign competitors. The size of home demand verifies farless significant than the character of home demand.
The terms of home demand support the building of a competitiveadvantage when a specific industrial sector is bigger or more visible in thelocal market than in the foreign markets. The bigger market sectors in a nationwill receive the most attention from local company. On another hand, companiesgive smaller or less desirable sectors a lower priority. An example of this is thehydraulic diggers, which are the most common types of construction equipmentused in the Japanese local market, but they represent a much lower proportionof the market in other developed countries. This sector is one of a few wherethere are strong Japanese international competitors and where Caterpillar doesnot have a large share of the global market.
More important than the combination of sections, is the nature oflocal buyers. The nation’s companies achieve a competitive edge if local buyersare the most cultured and challenging buyers in the world for a service orproduct. Cultured and challenging buyers offer a space to the customers’advanced requirements and needs. They are pushing companies to meet highstandards; they are demanding their improvement, to renovate, and upgrading tomore advanced sectors. As with factor conditions, demand conditions offeradvantages by pushing companies to respond to difficult challenges.Local buyers can support the nation’s companies make improvementsif their needs expect or even found the needs of other countries. Sometimesproactive needs arise because the nation’s political values indicate needs growin other places. Sweden’s long-lasting worry for handicapped people hasproduced a gradually competitive industry dedicated on special needs.
Denmark’snature has headed to achievement for companies in windmills and (waterpollution) control tools. Related andSupporting Industries. The third wide factor of national advantage isthe existence in the nation of related and supporting industries that areglobally competitive. Globally competitive local-based suppliers createadvantages in down-stream industries in some ways. First, they supply the mostprofitable inputs in an early, efficient, rapid, and sometimes better way.Italian silver and gold jewelry companies are leading the world in thatproduction in part since other Italian companies supply two-thirds of theworld’s jewelry-production.
Far more important than simple access to components and equipment,however, is the advantage that local-based related and supporting industriesoffer in revolution and upgrading an advantage based on close and local workingrelationships. End-users and Suppliers located nearby each other can takebenefit of short lines of communication, fast and constant flow of data, and anongoing exchange of ideas and innovations. Companies have the opportunity toimpact their suppliers’ technical efforts and can serve as test sites forR&D work, accelerating the pace of innovation. FirmStrategy, Structure, and Rivalry.
National environments and circumstance create strong trends inhow companies are created, managed, and organized as well as what the nature ofdomestic conflict and challenge will be. In Germany, companies tend to befirmly categorized in organization and management practices, and top leadersusually have technical experiences and backgrounds. In Italy, in contrast,successful global competitors companies are usually small-medium sizedcompanies that are private own and managed like groups.
Nomanagerial system is generally appropriate apart the current attraction withJapanese management. Competitive-ness in a particular industry results frommeeting of the management practices and organizational styles preferred in thecountry and the foundations of competitive advantage in the industry. Inindustries wherever Italian companies are world-leaders such as woolen fabrics,footwear, furniture, lighting, and packaging machines a company strategy thathighlights customized products, focus, position marketing, flexibility andrapid change fits both the dynamic of the industry and the behavior of theItalian management system.
The German management system, in contrast, works finein engineering-oriented or technical industries such as optics, chemicals,complicated machinery-where complex products demand accuracy manufacturing, acareful improvement process, after-sale facility and service, and thus a highlywell-organized management structure. German achievement is much rarer incustomer goods and services where appearance marketing and quick new-featureand model turnover are significant to competition. Each one of these four attributes describes a point on the diamondof national advantage; the influence of one point often depends on thecondition of others. Educated buyers will not translate into advanced products,for example, without the quality of human resources allows companies to meetbuyer needs.
Selective drawbacks in factors of production will not encourageinnovation unless conflict is strong and company goals support continuousinvestment. At the largest level, weaknesses in any one factor will limit anindustry’s potential for development and upgrading.