Porter's Diamond framework u7 p22

This framework can be used to emphasise the place of comparative advantage in international competitive advantage.

He introduces (Porter, 1990) the concept of "home base" - the cultural, social, economic, political, financial, regulatory and ethical context within you develop your identity, resources & capabilities, and how you manage. The home base influence comes from the national environment within which you are operating.

For a country to keep competitive advantage in an industry or sector over time, individual firms must innovate and continuously upgrade the quality of their resources and capabilities. Therefore home base advantage may wane if firms in the sector do not invest in innovation. Home base advantage is therefore dynamic, not static. Governments can influence the conditions for this, eg by investments or lack of in transport, education, etc.

The four parts of the diamond are:-

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

In the benetton example (u7 p23):-

Factor conditions - availability of highly skilled and cheap labour in a poor part of Italy due to the hundreds of years of skill and experience of the people in textiles
Demand conditions - the italians *want* fashionable clothing, they are passionate about fashion and spend a high proportion of their clothing and income on accessories, creating a demand for the product. But because they are so critical about the product, if your product survives in Italy, it should survive other international markets too.
Related and supporting industries - Italy has a cluster of fashion lablels, houses and designers, but also in many related industries such as leather, furniture and design. All these industries share common factors such as high design skills and knowledge of materials.
Firm strategy, structure and rivalry - firms that are located in competitive industries with high levels of national rivalry are most likely to do well in international markets, due to their efficiency etc. If they can survive in a cut-throat environment they can survive in other environments. Those with few or no national rivals are unlikely to cope as well internationally. Benetton is in a crowded industry and so has benefited from the experience of competing in that industry.

These are the home base and domestic industry conditions that are critical to your international success, according to Porter. Ohmae, on the other hand, disagrees. His view is that national roots must be left behind to be successful internationally. Porter views the national diamond as the springboard to your international success. Ohmae regards the world as borderless, where nations are less important, either as home bases or as sources of identity. u7 p25

Both agree that international firms emerge from their national origins which have helped establish their competitiveness. They disagree on the attributes of a firm with a successful global strategy.

Ohmae argues you should shake off your origins.

Porter argues that you should preserve them.

Ohmae criticises nearsightedness. He says MNCs are dominated by HQ who give too much weight to their domestic customers. He insists that global managers must act as if equidistant from all customers, wherever they may be. This is becoming an insider in all markets - an honorary citizen perceived as a direct investor in each home market that you operate in. He argues that if you have an insider mindset, you will be free of the standardising force of home base HQ.

Example - HSBC, which shook off its Asian history and roots.

Porter says that global strategy builds on local roots, and that continuous enhancements of comparative local factor endowments are the basis of distinctive capabilities and the source of dynamic advantage. Dynamic advantage means sustainable long term advantage. Porter's examples are Nestle, Sony and IBM, and sees a global strategy as supplementing the competitive advantage created at home base and that companies need to retain those elements when they expand abroad.

Where there are "clusters" of critical masses in one place of unusual competitive success in particular fields (porter, 1998, p78) it is often a straightforward task to demonstrate a strong national diamond. Well known examples include Hollywood (film industry) & Bollywood, Bangalore & Silicon Valley (IT), Bordeaux, Burgundy, Champagne, California, Southern Australian states (Wine) etc. etc.

Porter sees these clusters of excellence in terms of nations. Within a nation, demand conditions (one of the points on the diamond) are affected by its government's macro-economic policy; the nature of competition by its anti-trust and trade policies, the level and type of skills and knowledge from the education systems and the attitudes of staff, managers, customers caused by culture.

Sometimes government policies adopted to support local industries can be counter-productive in the long term since they will protect national firms from competitive pressure, relieving the burden of efficiency and innovation. Government intervention to protect domestic industries can actually hurt them.

So porter argues that despite global sourcing and excellent global communications and distribution infrastructures, that location still matters. Therefore your strategy in a country needs to be linked to the country's comparative advantage and should complement it, and vice versa. Therefore you can easily be more successful in some countries than in others.