What is Michael Porter’s Diamond Model for Competitive Advantage of Business?

Porter's diamond is the framework explains the reasons behind the competitiveness of nations in particular industry. E.g. Japan is well-known for consumer electronics, Germany is well-known for Cars and United Kingdom is well-known for financial service provision. These elements are inter-related  availability or not of one can influence the availability or not of others.


 Michael Porter's Diamond Model

  • Factor Conditions.

It means availability of resources and opportunities such as natural resources,  atmosphere and geo-locations which are pre-requisite of operating in particular sector. Like natural resources such as flowers help France to become leading quality fragrance supplier in the world. Similarly, atmosphere as summer helped Saudi Arab to grow quality dates and geo-locations provides seas, mountains to develop tourism industry as in Switzerland popular in it lush green sceneries. All these factors are beyond the control of the business. These factors provides competitive advantage as those other business and industries situated around the world cannot buy or develop such factors.


Some factor necessary for businesses like skilled labors, machinery and investment can be arranged, to achieve competitive advantage but this can be copied by other businesses also if everybody has got these controllable factor than they will no longer provide competitive advantage.


  • Demand Conditions.
    It means
    customer cleverness and knowledge of the industry and products. More sophisticated your customer,  quality will be more important for business success. Customer demands and attitudes regarding the quality and ability to adopted new thing forces the business to develop innovative products to achieve competitive advantage over local and foreign suppliers. This ultimately leads to business effectiveness and growth that can be used to offer products in new markets where demand exists for that quality standards of products.


In countries where customer are less educated and demanding  does not motivates business research and develop new products. History of the people in a region, education level of the people all influence customer demand conditions.  Demand conditions can change but it takes time and business cannot do much to change customer attitudes. In fact, businesses are influenced by demand conditions.


  • Firm strategy, structure and rivalry.
    It means
    market condition i.e. monopoly or perfect competition. Having monopoly in the market gives business no incentive to gain efficiency, on the other hand presence of successful rivals in the industry leads to efficiency. government  regulations can influence competition in particular industry like by giving subsidies and tax relief for business operating in that industry. This factor is not in the control of individual businesses, but governments and law can attract or detract new entrants to overcome this factor in long term.


Firm (sound) strategies to address needs of all key stakeholders make business operate effectively and grow without any interruption. Identification of key processes can enable business to allocate their resources wisely. Sound structure taking into account environmental and cultural factors lead to fluent and efficient operations. These factor can be changed by business through learning from already successful businesses. Some business has inherently environment and cultural advantages to which lead to that kind of practicable strategies and business structures. Like in Japan ability to work in teams, flexible timings, no retirement ages limit and use of marginal cost plus pricing helped them to become leading consumer electronics supplier. Some of these properties of Japanese cultures of adopted by several countries.


  • Related and supporting industries.
    It means
    infra-structure i.e. energy, transportation, communication and sewerage. Resources mentioned above as factor conditions can also be discussed here. Availability of transportation be help business to supplier their goods, like airport near  farms make it possible to supply groceries across the world without getting its perished. Business Competitors can be an indication of presence of support in the region in the way that employees changing their employer can transfer expertise related to industry to other employer.


Business requires upside and downside vertical value chain to be present to be operate successfully. Availability of support from other business help the business to focus on core capabilities and activities while outsourcing its weaknesses to supporting business. Ex. Natural juices manufacturer requires fruit pulp, but they are not good at farming fruits itself, if agriculture and farming industry is strong in that country they can acquire fruits from farmer and solely concentrate on its core activity i.e. extraction of juices from pulps.


Related posts:

Michael Porter's Generic Strategies.


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