The concept of national competitiveness entails the ability of a country to grow and compete with other nations for resources, investment, or income. This phenomenon is impacted by multiple factors, affecting the work of various industries within a state, which means that analysis of national competitiveness demands consideration of all these forces. Thus, Porter offered his diamond model to answer why some nations are more competitive than others in particular spheres. In accordance with this framework, four factors determine the national competitive advantage, such as factor conditions, demand conditions, related and supporting industries, firm structure, strategy, and rivalry (Porter, 1990). In such a way, national competitiveness can be analyzed by applying the diamond model.
One of the framework’s advantages is its ability to outline and investigate characteristics of national business systems in different nations. For instance, China is the largest global exporter of smartphones and phone system devices (Kharub and Sharma, 2017). Applying the diamond model, it is possible to see that this advantage comes from the governmental support, availability of capital and human resources (factor conditions), development of supportive industries (multiple suppliers), and critical demand for products existing both within the state and in the world (Kharub and Sharma, 2017). In such a way, Porter’s model helps to understand how the existing business systems improve the competitiveness of China at the international level. It becomes a potent tool helping to understand the major success factors needed for generating a competitive advantage.
At the same time, some issues remain disputable regarding the idea of competitive advantage of nations and Porter’s diamond. First of all, there is a lack of attention devoted to the global and historical context. For instance, Japan is nowadays known as the leader in producing nanotechnologies and robots (Tsai, Chen and Yang, 2021). Application of the diamond’s model helps to understand its sources; at the same time, in the 20th century, the states’ success in this field was not so obvious. It means that the alteration in the context and emphasis on specific industries helped to shape a national economy and generate a competitive advantage, which might be hardly explained by the discussed model. It also introduces the need for a broader context and historical factors to be analyzed.
National factors also become vital for discussing the success of a certain country and its ability to compete. The diamond model views them as the result of specific influences from the government, existing demand and factor conditions, and the context (Porter, 1990). In other words, national aspects do not just appear but are linked to specific elements. Using the example of Germany, it is possible to show that its traditionally strong chemical companies are associated with the research and development base (Tsai, Chen and Yang, 2021). At the same time, its potency is a result of national policies aimed at the promotion of the scientific sector (Tsai, Chen and Yang, 2021). In such a way, national competitiveness is linked to major factors existing within the state and touched by the diamond.
Furthermore, as stated previously, Porter’s diamond lacks the historical dimension as it devotes much attention to currently existing factors shaping the ability of the nation to compete. For instance, today, the USA remains one of the stable leaders in the IT-sphere, social media with Twitter and Facebook, and smartphones with Apple (Tsai, Chen and Yang, 2021). The diamond framework explains and predicts the competitiveness of the nation in the future and at the moment; however, the disregard of the historic component might reduce the accuracy of forecasting and correct understanding of the reasons for the change in the economy’s evolution vector. Thus, applying Late Development Theory, it is possible to compensate for this drawback and make Porter’s paradigm more applicable.
Developing his model, Porter (1990) introduced four central components of national competitiveness, describing the government as a catalyst and challenger. The central idea is that the researcher does not accept the idea of a free market and the fact that government can create competitive industries (Porter, 1990). Instead, they should promote domestic rivalry by creating anti-trust laws and cultivating demand for products (Porter, 1990). From this perspective, the state and its historical importance become less applicable for the diamond model offered by Potter as it is viewed as the force cultivating other factors, more important for the national competitiveness and the work of companies within a country.
Finally, it is vital to mention that factor and demand conditions are not purely national. The existing globalization issues affect the functioning of economies and industries within nations and shape the emergence of some common trends observed in various states (Tsai, Chen and Yang, 2021). Canada and Hong Kong are among the countries that respond to global webs and the changes in the international economy by adopting laws attracting new companies.
Moreover, multinational enterprises (MNEs) with similar trends affecting their competitiveness prove the strong influence of globalization. At the same time, governments might be interested in attracting inward FDIs to boss diversity in their economies and stimulate competitiveness (Kharub and Sharma, 2017). For instance, UK attracts investment from EU states and fast-evolving nations such as India or China (Tsai, Chen and Yang, 2021). It helps to meet the current globalization trends and, at the same time, increase the competitiveness of the nation.
Kharub, M. and Sharma, R. (2017) ‘Comparative analyses of competitive advantage using Porter diamond model (the case of MSMEs in Himachal Pradesh)’, Competitiveness Review, 27(2), pp. 132-160. Web.
Porter, M. (1990) ‘The competitive advantage of nations’, Harvard Business Review. Web.
Tsai, P.-H., Chen, C.-J. and Yang, H.-C. (2021) ‘Using Porter’s diamond model to assess the competitiveness of Taiwan’s solar photovoltaic industry’, SAGE Open. Web.