Porter's Diamond Model (What it is, Elements, Conditions and Variables)

The model of porter's diamond, is a method designed by Michael Porter, an American economist, who established which are the factors that make countries, companies or industries into successful and competitive, highlighting four generic tools or attributes and two variables, which make up and specify the scenario where the to compete.

This model defines the actions that a company must carry out to increase the added value to the end customer., this action should reduce costs. It is called Porter's diamond because the scheme where its elements are located is in the shape of a rhombus.

Elements of the Porter Diamond model

The characteristics of the factors or elements of the Porter diamond, distinguish the industries or the business sectors where a nation has the most opportunity for success international.

The advantages, in all the factors or elements of the Porter diamond, are essential to achieve and maintain this success. Although having adequate conditions in each attribute is not essential to find the optimal advantages in an industry.

Michael Porter discards the classical theory that is based on production factors, for Porter the matter is more complex. The factors of production that a company needs do not arrive alone, but must be created through innovation, inventing factors of production developed and specialized in the company in which it is being working.

These elements directly influence the competitive advantages of a company or industry:

• Human resources
• Knowledge
• Capital
• Physical resources
• Infrastructure

Porter's Diamond Model Conditions

The so-called generic attributes are those that represent ideal situations in which countries, business sectors and industrial sectors operate. Which establish the competitive advantages that are likely to be obtained at a given time. These attributes are as follows: Factor conditions, demand conditions, related and support sectors; and the strategy, structure and rivalry of the company.

1. Factor conditions: In this attribute of the Porter diamond, scarcity is considered as the main source of competitive advantage. On the contrary, abundance is considered as a source of complacent attitudes, while occasional handicaps enhance the success of an industry as it tries harder to innovate. The situation of the nation is important in terms of qualified labor or adequate infrastructure to compete in a given sector.
2. Demand conditions: This point of the Porter diamond is interested in the condition of the domestic demand. It focuses on analyzing the composition of domestic demand, its magnitude and growth parameters, and the instruments through which domestic demand preferences are transmitted to other countries.

The composition of demand can lead industries to create their own market, responding directly to the consumer. To achieve competitive advantage, we study the distribution of demand: whether it is formed in small nuclei or, on the contrary, it is in large agglomerations.

1. Related and auxiliary sectors: If a company wants to have a competitive advantage, it will not seek to establish itself in a market where there are already many expert companies in the sector. The costs of trying to enter this market would be very high, this is called market entry barriers. If a company does not have suppliers that supply what is necessary, it will stop its production chain and it will not be able to be competitive or productive.
2. Company strategy, structure and rivalry: Know the current conditions in the nation in relation to how companies are created, organized and managed, as well as the nature of domestic rivalry. It refers to the force with which the market forces industries to compete aggressively, creatively and globally. The organization schemes of the companies are different in each country, but, nevertheless, the companies that are most successful will be the ones that the environment gives them the best opportunities for advantage competitive.

Environmental variables

There are two variables that can directly intervene in the competitiveness system of a nation, these are the casual events and the action ofgovernment.

1. Casual events: Chance events play a very important role. This variable is outside the control of companies (and is generally outside the control of the government as well).

Usually, these unforeseen elements are closely related to new inventions, development in the technologies, external political episodes and visible changes in market demand international

The individual or combined work of these elements produces changes that can modify and reshape the scheme of the sector, offering opportunities to foreign companies to occupy the places of the industries local.

1. Government actionAlthough a part is contained in the strategy, the resource management model applied by a government in a country can directly influence the company.

In addition, it intervenes through investments in certain sectors for invention and development. Good government policies are very outstanding for the competitiveness of companies that belong to certain sectors, because they may improve or deteriorate national advantages.