Porter's Diamond Model

tructure, and Rivalry
The structure and management systems of firms in different countries can potentially affect competitiveness. German firms are oftentimes very hierarchical, which has resulted in advantages within industries such as engineering. In comparison, Danish firms are oftentimes more flat and organic, which leads to advantages within industries such as biochemistry and design.
Likewise, if rivalry in the domestic market is very fierce, companies may build up capabilities that can act as competitive advantages on a global scale. Home markets with less rivalry may therefore be counterproductive, and act as a barrier in the generating of global competitive advantages such as innovation and development.
1. Strategy
(a) Capital Markets o Domestic capital markets affect the strategy of firms. Some countries’ capital markets have a long-run outlook, while others have a short-run outlook. Industries vary in how long the long-run is. Countries with a short-run outlook (like the U.S.) will tend to be more competitive in industries where investment is short-term (like the computer industry). Countries with a long run outlook (like Switzerland) will tend to be more competitive in industries where investment is long term (like the pharmaceutical industry).
(b) Individuals’ Career Choices o Individuals base their career decisions on opportunities and prestige. A country will be competitive in an industry whose key personnel hold positions that are considered prestigious.
2. Structure
• Porter argues that the best management styles vary among industries. Some countries may be oriented toward a particular style of management. Those countries will tend to be more competitive in industries for which that style of management is suited.
• For example, Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and Italy has smaller, family-run firms.
3. Rivalry
• Porter argues that intense competition spurs innovation. Competition is particularly fierce in Japan, where many companies compete vigorously in most industries.
• International competition is not as intense and motivating. With international competition, there are enough differences between companies and their environments to provide handy excuses to managers who were outperformed by their competitors.

Implications for Governments
• The government plays an important role in Porter’s diamond model. Like everybody else, Porter argues that there are some things that governments do that they shouldn't, and other things that they do not do but should. He says, "Government’s proper role is as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance …"
• Governments can influence all four of Porter’s determinants through a variety of actions such as
a. Subsidies to firms, either directly (money) or indirectly (through infrastructure).
b. Tax codes applicable to corporation, business or property ownership.
c. Educational policies that affect the skill level of workers.
d. They should focus on specialized factor creation. (How can they do this?)
e. They should enforce tough standards. (This prescription may seem counterintuitive. What is his rationale? Maybe to establish high technical and product standards including environmental regulations.)
• The problem, of course, is through these actions, it becomes clear which industries they are choosing to help innovate. What methods do they use to choose? What happens if they pick the wrong industries?