Question

Outline why Porter’s Diamond of National Competitive Advantage is considered to be a strong predictor of global trade patterns. When compared against other trade theories do you consider it the best theory to explain global trade patterns? Why/why not?

(broad question 350 words approx)

Answer 1

Porter's Diamond theory of National Advantage was formulated to understand how nations gain a competitive advantage because of the factors that they are endowed with. It was proposed by Michael Porter. Porter suggested that a nation's local industry becomes competitive if it has the ability to innovate as well as upgrade. This gave an explanation to why is it that certain countries are famous for certain industries. The four determinants as per the model are:

1. Resources and capabilities or the factors of production

2. Demand conditions in the market

3. Characteristics of the firm and its strategy

4. Complementary industries and other related industries

Porter also gave a significant role to the government by stating that the governments can also improve the competitive advantage of the industries through their actions and policies. All these factors will help the country to develop a competitive advantage. In real life scenario the Japanese facsimile industry seems to be following this trade theory model by using all these four conditions as mentioned by Porter. One of the main condition that could be clearly seen was how the rivalry between domestic firms helped promote innovation. The government also by changing the regulations in the industry helped in them gaining an advantage.

It can be used for two ways:

1. It helps identify and describe the sources which a nation can use for its competitive advantage

2. The path to be followed to obtain this competitive advantage is also described.

This is a theory that is stronger than other trade theories because of one differentiating factor which is that while other theories talk about how nations can gain an advantage with the help of factors that they already possess, this diamond theory talks about how nations can create factor advantages for themselves. Porter theory can also be used in deciding corporate strategy. This is also one of the significant trade theory but it cannot be said that this theory dominates the other theories but one thing is for sure that all the trade theories have made it easier for countries and businesses to trade efficiently.

Porter's Diamond theory of National Advantage was formulated to understand how nations gain a competitive advantage because of the factors that they are endowed with. It was proposed by Michael Porter. Porter suggested that a nation's local industry becomes competitive if it has the ability to innovate as well as upgrade. This gave an explanation to why is it that certain countries are famous for certain industries. The four determinants as per the model are:

1. Resources and capabilities or the factors of production

2. Demand conditions in the market

3. Characteristics of the firm and its strategy

4. Complementary industries and other related industries

Porter also gave a significant role to the government by stating that the governments can also improve the competitive advantage of the industries through their actions and policies. All these factors will help the country to develop a competitive advantage. In real life scenario the Japanese facsimile industry seems to be following this trade theory model by using all these four conditions as mentioned by Porter. One of the main condition that could be clearly seen was how the rivalry between domestic firms helped promote innovation. The government also by changing the regulations in the industry helped in them gaining an advantage.

It can be used for two ways:

1. It helps identify and describe the sources which a nation can use for its competitive advantage

2. The path to be followed to obtain this competitive advantage is also described.

This is a theory that is stronger than other trade theories because of one differentiating factor which is that while other theories talk about how nations can gain an advantage with the help of factors that they already possess, this diamond theory talks about how nations can create factor advantages for themselves. Porter theory can also be used in deciding corporate strategy. This is also one of the significant trade theory but it cannot be said that this theory dominates the other theories but one thing is for sure that all the trade theories have made it easier for countries and businesses to trade efficiently.