The book, “The Competitive Advantage of Nations”, shows how Michael Porter studied ten developed countries and 100 industries in order to answer questions concerning the national competitive advantage which he found to be inadequately explained by the Heckscher-Ohlin theory and the theory of comparative advantage. (Hill, 2009, p. 189).
These questions include:
A. “Why are some nations more successful than others in international competition?” B. “Why does a nation achieve international success in a particular industry?” The model comprises of four attributes of a nation constituting the diamond as shown in figure 1. The attributes shape the national environment in which local firms compete (Porter, 1990; Yetton, Craig, Davis, & Hilmer, 1992, pp. 91-93).
Figure 1: The determinants of national competitive advantage (Porter, 1990, p. 127) 1. Factor conditions/endowments: a nation’s factors of production such as skilled labour and infrastructure are essential in its competitiveness. 2. Demand conditions: the characters of domestic market demand for the industry’s product or service. 3. Related and supporting industries: the presence or absence of internationally competitive supplier industries and related industries within the nation. 4. Firm strategy, structure and rivalry: the nature of domestic competition and the conditions that determine how companies are created, organized and managed.
Porter also mentioned two additional factors that can have an impact on the national diamond: 5. Government: Government can either positively or negatively influence each of the four attributes by its choice of policy. 6. Chance: Industry structure can be reshaped by unforeseen events which create opportunity for firms within nations or otherwise.
However, there are several criticisms on the book and the model itself: Firstly, the length of the book is too long and complex to be used by managers (Rugman, 1991, p. 61). Secondly, by using reference from 16 industry clusters in 10 developed countries, some doubt has been raised in his methodology as the range of sample is not wide and detailed enough to make it relevant to other nations (Rugman, 1991). Finally, Porter’s diamond model itself has been criticized for its imperfect view as it neglects some critical issues and also, it has not been subjected to detailed empirical testing (O'Shaughnessy, 1996, p. 19). The model’s application is flawed especially due to lack of depth in culture, history and multinational activity.
II. MAIN CRITICISM
In his book, Porter tried to develop an empirically-relevant theory through the use of deductive and inductive analysis. The choice of nations itself was criticized as the only reason for these countries to have stronger diamonds compared to others is because of their comparative advantage or their internal and external economies of scale (Smit, 2010, p. 123). By focusing on the industrialized nations, Porter was able to provide an insight for nations that want to improve the competitive advantage through innovation but it offers little insight for other economies (Yetton, Craig, Davis, & Hilmer, 1992, p. 90). Furthermore, the relationships amongst these factors of the diamond model are very complicated due to the interaction of a wide range of variables to a point that these factors seem to overlap each other. As a consequence, it is not clear why the diamond is not represented as a triangle or a pentagon (Grant, 1991, p. 542). In addition, due to the broad scope Porter tried to cover, it is not surprising that the book fell short in theory, exposition and empirical research. The concepts and theories are not well developed as Porter interpreted them differently throughout his work to fit in the model’s concept. For example, Porter uses the phrase of “upgrading” with different interpretations throughout his book. The...