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Fall 2013 smu mba assignment help of MB0053 Q1. Discuss Porter’s diamond model for international trade.

ANSWER In 1990, Michael Porter thesis outlined four broad attributes that shape the environment in which local firms compete and these attributes promote the creation of competitive advantage. They are explained as follows:
 Factor endowments - Characteristics of production were analysed in detail. Heirarchies are recognised, as is distinguishing between basic factors like natural resources, climate, location and so on and advanced factors
like communications infrastructure, research facilities.
Demand conditions - The role of home demand in improving competitive advantage is emphasised since firms are most sensitive about the needs of their closest customers. Example, the Japanese camera industry which caters to a sophisticated and knowledgeable local market.
Relating and supporting industries - The presence of suppliers or related industries is advantageous since the benefits of investment in  advanced factors of production spill over to these supporting industries. Successful industries within a country tend to be grouped into clusters of related industries.Example, Silicon Valley.

Firm strategy, structure and rivalry:Domestic rivalry creates pressure to innovate, improve quality, reduce costs which in turn helps create world-class competitors.

He said that these four attributes constituted the diamond and he argued that firms are most likely to succeed in industries where the diamond is most favourable. He also stated that the diamond is a mutually reinforcing system and the effect of one attribute depends on the state of others. For example, favourable demand conditions will not result in a competitive advantage unless the state of rivalry is enough to elicit a response from the firms.


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