The Four Attributes of Michael Porters Diamond of National Competitive Advantage
Porter (1990) showed that the success of a nation in a competitive international market system depends on four broad attributes. These attributes individually and systemically constitute the diamond of national competitive advantage.The factors used in classical economic theories to explain absolute advantage (as in the case of Adam Smith) and comparative advantage of nations (by David Ricardo) were capital, labour, natural resources, land and infrastructure. Porter proved that these ‘basic factors’ were not adequate to constitute a competitive advantage for nations. Rather these basic factors are transformed into ‘key’ specialized factors through heavy and sustained investment (118). Hence factors that constitute advantage are created by nations rather than inherited and competitive advantage of nations depends on the extent they create factors. Holland’s investment in horticultural research creates the scientific base for its leading position in the exportation of lowers.Absence or relative abundance of one or more basic factors that may constitute a competitive disadvantage to other nations may serve as a catalyst for innovation and change necessary for creating other key factors. Japan’s competitive advantage in the automobile industry is a good example. Japan, “an island nation with no natural resources”, invested heavily in human capital hence creating the key factor (skilled labour and scientific base) needed to gain a competitive advantage in hi-tech and iron and steel-based automobile industry out of basic factor (labour). Also, the ability of Japanese companies, faced with intense local rivalry and a mature economy, to eliminate the labor factor in the production of consumer electronics gave it an edge in the international market. It introduced automation which eventually cut down the cost of labour in the production process.Conversely, US companies outsourced the labor intensive aspect of the production of the same products to Asian countries, where labour is relatively cheaper (119).