The Competitive Advantage of Nations

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

Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries: 1.Land
3.Natural resources (minerals, energy)
4.Labor, and
5.Local population size.
Because these 5 factors can hardly be influenced, this fits in a rather passive (inherited) view regarding national economic opportunity.
Porter says that sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such factors may actually undermine competitive advantage! He introduces a concept called "clusters" or groups of interconnected firms, suppliers, related industries, and institutions, that arise in certain locations.

These clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field. They grow on locations where enough resources and competences amass and reach a critical threshold, giving it a key position in a given economic branch of activity, with a decisive sustainable competitive advantage over others places, or even a world supremacy in that field. Porter says clusters can influence competition in three ways: •They can increase the productivity of the companies in the cluster. •They can drive innovation in the field.

They can stimulate new businesses in the field.
Some well-known examples of Clusters are USA/Silicon Valley (computers), Netherlands/Rotterdam (logistics), India/Bangalore (software outsourcing), USA/Hollywood (movies), France/Paris (fashion).

According to Porter, as a rule competitive advantage of nations is the outcome of 4...
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