Michael Porter Wealth of Nations

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Most discussions of the competitive success of nations look at aggregate, economy-wide measures like the balance of trade. Porter chose a different starting point, beginning with individual industries and competitors and building up to the economy as a whole. Nations do not compete in the marketplace—business firms do, and the performance of individual companies in particular industries in where competitive advantage is either won or lost. The home nation influences the ability of its firms to succeed in particular industries, with the success or failure of thousands of struggles in many industries determining the state of a nation’s economy and its ability to progress.

Porter and his research team studied ten important trading nations, including the three leading industrial powers (the United States, Japan, and Germany), plus other European and Asian countries chosen to vary widely in size, government policy toward industry, social philosophy, geography, and region. In every case, firms were found to be internationally competitive because of a set of conditions in the home country favorable to the development of their industry.

Four determinants interact to form a “diamond": firm strategy, structure, and rivalry; factor conditions (e.g., natural resources); demand conditions; and related and supporting industries. The “diamond” is further influenced by chance events and government action. There is no single set of national conditions favorable to all industries, a fact borne out by the detailed industry and country studies which constitute the bulk of the book. A final section presents the implications for company strategy, government policy, and the national agendas of the ten countries.

The argument is incisive and original, the evidence compelling—certainly any future work on national competitiveness will have to take this thought-provoking book into account. Porter’s approach did result in a very long volume, with considerable repetition as the theory was applied to each new situation. The preface acknowledges this, and many readers will prefer to follow one of the suggested shorter paths through the book. No one with a serious interest in the subject, however, should miss THE COMPETITIVE ADVANTAGE OF NATIONS

The Diamond Model of Michael Porter for the Competitive Advantage of Nations offers a model that can help understand the competitive position of a nation in global competition. This model can also be used for other major geographic regions.  

Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:  
- Land
- Location
- Natural resources (minerals, energy)
- Labor, and
- Local population size.
 
Because these factor endowments can hardly be influenced, this fits in a rather passive (inherited) view towards national economic opportunity.  
Porter says sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such factors may actually undermine competitive advantage! He introduced a concept of "clusters," or groups of interconnected firms, suppliers, related industries, and institutions that arise in particular locations.  

As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a pro-active way by government.  

These interlinked advanced factors for Competitive Advantage for countries or regions in Porters Diamond framework are:  
1. Firm Strategy, Structure and Rivalry (The world is dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in productivity and innovation)  
2. Demand Conditions (The more demanding the customers in an economy, the greater the pressure facing firms to constantly improve their competitiveness via innovative products, through high quality, etc)  ...
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