2. Theory of National Competitive Advantage
The theory attempts to analyze the reasons for a
nation’s success in a particular industry
Porter studied 100 industries in 10 nations
Postulated determinants of competitive advantage of a
nation were based on four major attributes
Factor endowments
Demand conditions
Related and supporting industries
Firm strategy, structure and rivalry
3. Porter’s Diamond
Success occurs where these attributes exist
More/greater the attribute, the higher chance of
success
The diamond is mutually reinforcing
4.
5. Factor Endowments
Factor endowments: A nation’s position in
factors of production such as skilled labor or
infrastructure necessary to compete in a given
industry
Basic factor endowments
Advanced factor endowments
6. Basic Factor Endowments
Basic factors: Factors present in a country
Natural resources
Climate
Geographic location
Demographics
While basic factors can provide an initial
advantage they must be supported by advanced
factors to maintain success(Advanced Factors
enable a speedier transformation of Basic
Factors??)
7. Advanced Factor Endowments
Advanced factors: The result of investment by
people, companies, and government are more
likely to lead to competitive advantage
If a country has no basic factors, it must invest in
advanced factors
10. Related and Supporting Industries
Creates clusters of supporting industries that are
internationally competitive
Must also meet requirements of other parts of
the Diamond
11. Firm Strategy, Structure
and Rivalry
Long term corporate vision is a determinant of
success
Management ‘ideology’ and structure of the firm
can either help or hurt you
Presence of domestic rivalry improves a
company’s competitiveness
12. Porter’s Theory-Predictions
Porter’s theory should predict the pattern of
international trade that we observe in the real
world
Countries should be exporting products from
those industries where all four components of the
diamond are favorable, while importing in those
areas where the components are not favorable
13. Implications for Business
Location implications:
Disperse production activities to countries where they
can be performed most efficiently
First-mover implications:
Invest substantial financial resources in building a first-
mover, or early-mover advantage
Policy implications:
Promoting free trade is in the best interests of the
home country, not always in the best interests of the
firm, even though many firms promote open markets