The response lies in four broad attributes of a nation, attributes
that separately and as a system create the diamond of national advantage, the
playing field that each nation creates and operates for its industries. These
attributes are: Factor Conditions, which explains nation’s situation in
factors of production, such infrastructure and skilled labor, essential to
compete in a given industry. Demand Conditions, which explains the
nature of (home market) demand for the industry’s service or product. Related
and Supporting Industries, which explains the existence or absence in the
nation of provider industries and other related industries that are globally
competitive. Firm Strategy, Structure, and Rivalry, which explains the
conditions in the nation leading and control how companies are created, managed
and organized, as well as the nature of local conflict.
situation 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, and
infrastructure. They also include factors such as the quality of research at
universities, the deregulation of labor markets, or the fluidness of national
stock markets. These often provide primary national factors Advantages, which
later built on. Each country has its own set of factors; hence, each country
will develop those industries in which a certain set of factors is an optimal
This clarifies the presence of so-called low-cost countries (low
labor costs), agricultural countries (large countries with rich soil), or a
culture of start-up in the United States (the well-developed project capital
market). Porter arguments out that these factors are not necessarily made by
nature or inherited. They may evolve and change.
Political initiatives, Technological progress or socio-cultural
changes, for example, may constitute the conditions of national factors. A good
example is Discussion on the ethics of genetic engineering and replicating that
would affect the knowledge investment in this zone in North America and Europe.
An internationally successful industry may lead to benefits in
other related industries or subsidies. Competitive supply industries will
promote innovation, improvement and internationalization in industries at later
phases of the value system. Additionally to suppliers, related industries are
also important. These are industries that can use and coordinate certain
activities 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 not
only successful with leather and shoes, but with related services and products
for example leather machines, work, and design.
It might appear that the
globalization of competition would reduce the importance of home demand. In
practice, however, this is simply not the case. In fact, the structure and
character of the home market usually has an unequal effect on how companies recognize,
understand, and respond to buyer wants and needs. Nations got competitive
advantage in industries where the home demand gives their companies a clearer
or earlier picture of initial buyer needs, and where demanding buyers force
companies to renovate faster and achieve more sophisticated competitive
advantages than their foreign competitors. The size of home demand verifies far
less significant than the character of home demand.
The terms of home demand support the building of a competitive
advantage when a specific industrial sector is bigger or more visible in the
local market than in the foreign markets. The bigger market sectors in a nation
will receive the most attention from local company. On another hand, companies
give smaller or less desirable sectors a lower priority.
An example of this is the
hydraulic diggers, which are the most common types of construction equipment
used in the Japanese local market, but they represent a much lower proportion
of the market in other developed countries. This sector is one of a few where
there are strong Japanese international competitors and where Caterpillar does
not have a large share of the global market.
More important than the combination of sections, is the nature of
local buyers. The nation’s companies achieve a competitive edge if local buyers
are the most cultured and challenging buyers in the world for a service or
product. Cultured and challenging buyers offer a space to the customers’
advanced requirements and needs. They are pushing companies to meet high
standards; they are demanding their improvement, to renovate, and upgrading to
more advanced sectors. As with factor conditions, demand conditions offer
advantages by pushing companies to respond to difficult challenges.
Local buyers can support the nation’s companies make improvements
if their needs expect or even found the needs of other countries. Sometimes
proactive needs arise because the nation’s political values indicate needs grow
in other places. Sweden’s long-lasting worry for handicapped people has
produced a gradually competitive industry dedicated on special needs. Denmark’s
nature has headed to achievement for companies in windmills and (water
pollution) control tools.
The third wide factor of national advantage is
the existence in the nation of related and supporting industries that are
globally competitive. Globally competitive local-based suppliers create
advantages in down-stream industries in some ways. First, they supply the most
profitable inputs in an early, efficient, rapid, and sometimes better way.
Italian silver and gold jewelry companies are leading the world in that
production in part since other Italian companies supply two-thirds of the
Far more important than simple access to components and equipment,
however, is the advantage that local-based related and supporting industries
offer in revolution and upgrading an advantage based on close and local working
relationships. End-users and Suppliers located nearby each other can take
benefit of short lines of communication, fast and constant flow of data, and an
ongoing exchange of ideas and innovations. Companies have the opportunity to
impact their suppliers’ technical efforts and can serve as test sites for
R&D work, accelerating the pace of innovation.
Strategy, Structure, and Rivalry. National environments and circumstance create strong trends in
how companies are created, managed, and organized as well as what the nature of
domestic conflict and challenge will be. In Germany, companies tend to be
firmly categorized in organization and management practices, and top leaders
usually have technical experiences and backgrounds. In Italy, in contrast,
successful global competitors companies are usually small-medium sized
companies that are private own and managed like groups.
managerial system is generally appropriate apart the current attraction with
Japanese management. Competitive-ness in a particular industry results from
meeting of the management practices and organizational styles preferred in the
country and the foundations of competitive advantage in the industry. In
industries wherever Italian companies are world-leaders such as woolen fabrics,
footwear, furniture, lighting, and packaging machines a company strategy that
highlights customized products, focus, position marketing, flexibility and
rapid change fits both the dynamic of the industry and the behavior of the
Italian management system. The German management system, in contrast, works fine
in engineering-oriented or technical industries such as optics, chemicals,
complicated machinery-where complex products demand accuracy manufacturing, a
careful improvement process, after-sale facility and service, and thus a highly
well-organized management structure. German achievement is much rarer in
customer goods and services where appearance marketing and quick new-feature
and model turnover are significant to competition.
Each one of these four attributes describes a point on the diamond
of national advantage; the influence of one point often depends on the
condition of others. Educated buyers will not translate into advanced products,
for example, without the quality of human resources allows companies to meet
buyer needs. Selective drawbacks in factors of production will not encourage
innovation unless conflict is strong and company goals support continuous
investment. At the largest level, weaknesses in any one factor will limit an
industry’s potential for development and upgrading.