Question

Why does Porter’s Diamond need to be modified in explaining the international competitiveness of countries such as Canada and Mexico?

Answer 1

The porter diamond model is flawed when applied to a small, open, trading economy like Canada or Mexico. It needs to be modified to explain success of such countries resource-based multinationals through the Free Trade Agreement. The Porter (1990) study suggests that the home country "diamond" is the source of competitive advantage for domestic firms. The competitive advantage of a domestic firm depends upon the key determinants of the nation's international competitiveness. The successful domestic firms build upon this and can subsequently engage in outward foreign investment. In short, the model concludes that a global firm needs a competitive advantage based on the utilization of components of its home country diamond.

However, this model is not applicable to small, open, trading economies such as the Canada and Mexico with free trade agreements with the U.S. Free Trade Agreement. This arrangement means that the Canadian or Mexican diamond need to be jointly considered with the U.S. diamond which means that theese countries operate in a "double diamond" framework. Rugman, 1991 also suggests that the  competitive advantage for such countries may be derived from a combination of “Diamonds” which can exist outside of the home country. These countries can build global competitiveness even when domestic components are not particularlystyrong because of free trade agreements  with other nations have demonstrated capabilities. Thus the Porter's model needs to be modified in such scenarios.

If you found the answer helpful, please upvote the same. It will help me serve you better!