Dr.

Michael Porter is a well known professor at Harvard Business School and he has, over the years, earned an international reputation for writing and speaking about trade theories and competitiveness.

"Porter's 'Diamond' proposes several basic elements which govern a country's trading competitiveness. The theory propounds demand, factor and inter-firm conditions as the rudiments of a healthy open economy." Barbara J. O'Toole

"He [Porter] argues that the factor endowment theories of Heckscher and Ohlin are too simplistic to determine a nation-state's competitive advantage. Comparative advantage can no longer be seen as 'divine inheritance'. Porter states that international success in a particular industry is determined by four broad mutually reinforcing factors which create an environment which enables these firms to compete. The four include factor conditions, demand conditions, related and supporting industries and firm structure, strategy and rivalry. These determinants also being influenced by the nation's government and by chance events." . International competitiveness determined by factor conditions demand conditions related and supporting industries and firm structure the company's strategy, organizational structure and rivalry

Porter divides factors into o basic natural resources, climate un/semi-skilled labour advanced those whose development demands large and substantial investment in human and physical capital generalised specialised

o o o

. In a number of textbooks dealing with international business, the author sometimes includes a diagram representing Porter's "diamond", which is similar to the diagram below. The important point is that all 4 of these conditions need to be favourable in order for an industry, within a particular country, to achieve worldwide success. factor conditions demand conditions related and supporting industries and firm structure

the company's strategy, organizational structure and rivalry

The reason for the "diamond" diagram is that it allows for the 4 parts to show links to each neighbour, and also across the diagram to other components - in effect each part (condition) is linked, and cross-linked to each other part. .

The diagram above comes from the site of Prof. Keith Head, Associate Professor , Strategy and Business Economics Division, at UBC and is reproduced here with his permission given in a Jan 18th 2001 email. Copies of emails are kept in the permissions binder

. KEY The point of discussing Prof. Porter's "diamond", is that once you POINTS understand some theories of why countries trade - it is reasonable to discuss the point that - "countries do not trade - companies do"; therefore Porter's theory is useful in order to look at why companies trade and what are the conditions that allow for a company to have competitive superiority. WTGR . Porter's theory has been widely adopted and there are many examples of where people use it to speculate how an entire country should be planned. Example - Nepal ht

In this article from Nepal News, Navin Dahal explains how Nepal could benefit from adopting some of the principles that Porter theorizes. "Asking "How can Nepal be competitive?" will lead us nowhere as countries do not compete, companies do. The very notion of a country being competitive is misleading. No country in the world, even Japan and the USA, is competitive in all industries. A country can be globally competitive only in a few industries. Thus the right question to ask would be "In which industry or industries can Nepal be competitive?" Answering this will require an understanding of what makes a country competitive in a particular industry. Why are the Japanese doing so well in the electronics industry and the Americans in the IT industry? What is it that a particular country has, but others do not, making its industry globally competitive?

"Are sound macroeconomic policies and political stability enough? The answer, according to Prof. Michael E. Porter of Harvard Business School, is a big no. Political stability and sound macroeconomic policies are necessary but not sufficient. ... The central issue in becoming globally competitive is how to create the conditions for rapid and sustained productivity growth in a particular industry. The microeconomic foundations of productivity rest on two interrelated areas: First the sophistication with which companies compete, and second, the quality of the microeconomic business environment. Companies, not governments, ultimately set the level of national productivity, and their ability to upgrade depends on the national business environment. Once companies move to more sophisticated ways of competing at the national level, their chance of becoming globally competitive increases. "

. KEY Porter is saying great government policy can't help companies of the country be POINTS competitive. Companies have to be competitive by striving for things beyond that which their host government can effect. This does not "release" governments from responsibility to help companies - it simply recognizes that government is not the total answer. Understanding this point is critical for students of international business in Canadasince it should be recognized that Canadian companies (in the opinion of many observers) are much more coddled than U.S. companies. WTGR . While studying the theory of international competitiveness is interesting, let's have a look at what it means to Canada in reality. A newspaper story in the spring of 2001 reported Canada as having slipped to 9th on a list of competitive nations.