Advantages And Disadvantages Of Diamond Model

In international business theory there are a number of useful models for the external environment analysis of specific countries. These methods can be applied by companies that aim to internationalise and so to define the right location(s) abroad in terms of institutional as well as cultural fit and success opportunities. Correspondingly, concepts like this also provide insightful information for explaining the location choices which organisations have already made. One such framework is the so called Diamond Model introduced by Michael Porter in 1990. This essay tries to determine its advantages and disadvantages as a tool for the examination of firm’s home and host location decisions by focusing on two major MNEs: the world’s second-largest

From an organisational perspective this means that national competitive advantage depends on the nation’s ability to provide a home base for companies to sustainably improve their products and services in terms of quality, features, technology and so to successfully compete in highly productive industries internationally. Hence, the advantage of the framework is that it identifies four important, interrelated factors that create and illustrate the essential national environment where companies are born, grow and build sustainable competitive advantages (Porter, 1990: 78). The concept is then quite useful for companies to perform the necessary research and identify which countries would be most suitable for internationalisation. The first determinant, factor conditions, are the factors of production such as land, raw materials, capital, infrastructure etc., that are not inherited, but developed and improved by a nation–e.g. skilled labour (Porter, 1990: 79). Thus, sustaining competitive advantage depends on the factor creation ability. For instance, Carrefour was originally family-owned but when it decided to internationalise, a high amount of capital was needed so it went public in 1970 to support itself financially (Shiue, Horngand Yeh, 2006:

capable suppliers, also competitive on a global scale (Porter, 1990: 82).Establishing good relationships with partners within highly developed clusters of industries provides companies with some significant mutual benefits such as better and faster information and communication, cooperation and support, know-how and exchange of ideas. Those industries are very much dependent on each other throughout the whole supply chain for mutual profit realisation. For instance, due to strong competition, M&S has recently pressed suppliers to a 1.25% turnover contribution with the group claiming that their growth mainly depends on retail sales and so suppliers do not really have a choice but to accept those terms (Financial Times, 2011). Or, when M&S switched to low-cost providers in the late 1990s and basically destroyed its long-term relationships with previous suppliers, it damaged its reputation enormously (Mellahi, Jackson and Sparks, 2002: 23). Another example that illustrates the importance of related industries is Carrefour’s failure in the US because it was unable to get favourable prices from suppliers and to keep its low-cost margin (Shiue, Y., Horngand Yeh, 2006: