Porter's Diamond Model National Competitive Advantage

Theory of National Competitive Advantage 

National competitive advantage refers to the factors that give a country an edge in producing and exporting specific goods and services. 

The Theory of National Competitive Advantage, also known as Porter's Diamond Model, was developed by Michael Porter. It clarifies why certain countries have greater success than others in particular industries on the global market or international competition.

This model identifies four main determinants that influence a country's success in a particular industry.

• Factor conditions : There are two types of factor endowments Basic Factors and Advanced Factors. Basic factors includes climate, location, natural resources,etc and Advance factors includes communications, research facilities, technology, etc advance factors are most important for Competitive Advantage. In contrast to conventional wisdom, which prioritises natural resources, Porter places greater emphasis on advanced factors produced via investment and innovation. This can be influenced by subsidies,reforms,level of education etc.

• Demand Conditions: The type of home market for goods and services provided by an industry play a very important role. Firms are forced to innovate and enhance quality due to strong and sophisticated local demand, which gives them a competitive advantage when they join international markets.

• Related and supporting Industries: The presence of strong supporting industries in a country can be a big advantage. For instance, a thriving auto parts industry can benefit car manufacturers in that country.These sectors may promote innovation by exchanging knowledge, sharing technology, and fostering tight working ties.

• Firm strategy, structure and rivalry: Global competitiveness may be influenced by a nation's industry degree of competition, managerial style, and organisational structure. Strong domestic competition can encourage companies to be more efficient and innovative. It creates pressure to innovate, to improve quality, reduce cost and investment in advance factors. All this help to create world class competition. 

Assumptions for Porter's Diamond Model 

1. Domestic Environment: Domestic environment refers to the conditions and factors within a country that affect how businesses operate and compete.The model makes the assumption that a corporation's ability to compete internationally is greatly influenced by its home environment, which includes factor and demand circumstances, related and supporting industries, firm strategy, and rivalry.

2. Government: According to the theory, external factors like as government regulations and chance can have a substantial impact on the four main qualities, either positively or adversely, hence influencing the competitive landscape.

3. Innovation and Upgrading: It makes the assumption that in order to preserve a competitive edge, innovation and the upgrading of resources and capabilities are crucial. Both countries and businesses need to constantly increase their efficiency and productivity.

4. Local and Global Interactions: The model makes the assumption that the local (domestic) and global (international) environments are highly interdependent. It is believed that success in the home market is a requirement for success abroad. 

5. Relative Importance of Factors: This statement presupposes that the industry and national context can influence the relative importance of the four attributes—factor conditions, demand circumstances, linked and supporting industries, firm strategy, structure, and rivalry.

6. Firms' Role: It is assumed that firms are essential to establishing and maintaining a country's competitive edge. Companies are viewed as the main drivers of innovation and competitiveness, propelled by strategic management and internal competition.

These presumptions set the stage for the application of the Diamond Model and offer a basis for comprehending the creation and maintenance of national competitive advantage. 

It's crucial to remember that these presumptions also draw attention to the model's shortcomings because they might not adequately account for the subtleties and complexity of all countries or sectors.

In conclusion, Porter's Diamond Model suggests that these characteristics and variables interact to create the business climate that gives countries their competitive edge. The knowledge of national competitive dynamics and strategic economic planning have benefited from the use of this theory.