Porter's Diamond

Definition - What does Porter's Diamond mean?

Porter’s diamond is a framework for analyzing and understanding the competitive advantages that one nation has over another. This model is visualized as a diamond shape formed by four points:

  • Factor conditions
  • Demand conditions
  • Related and supporting industries
  • Firm strategy, structure and rivalry

The diamond model was first put forward by scholar Michael Porter in his book "The Competitive Advantage of Nations" (1990). Porter’s diamond attempts to explain why particular industries become competitive in certain nations. While the diamond model is most often used by analysts looking at specific established markets, it can also be useful to predict the future direction of emerging markets and industries. As such, it may play a role in business strategy and marketing.

Porter's diamond is also known as the diamond model, the national diamond, or Porter’s diamond of national advantage.

Zideate explains Porter's Diamond

While the basic concept of Porter’s diamond may seem simple enough on the surface, grasping a deep understanding of its principles can prove more intimidating.

The four points of the diamond each influence, and are influenced by every other point of the diamond. Two additional factors lie outside the diamond but exert a direct influence on it. One is government, which can intervene at any level to affect any number of key criteria in each of the above four points. Government may have a positive influence to the extent that it encourages innovation, quality and high performance. However, government intervention can also hinder businesses.

The other factor that lies outside the diamond is chance. This is one that is hard to quantify and even harder to predict. Any mitigating factor that remains beyond the control of the companies in question can be relegated to this catch all category, which accounts for any unforeseen contingencies.

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