Factor Conditions Porter's Diamond

Factor conditions Factor conditions were distinguished as following categories: human resources, physical resources, knowledge resources, capital resources and infrastructure (Porter 1990). All the factors were considered as initial elements to help the nations to get competitive advantages in some given industries. For example, Germany could be a leading country in chemical industry, because of rich knowledge resources storage and thousands of chemical major graduates. However, all the factors were not always fixed, the human resources, knowledge, and capital factors were mobile among nations, skilled people moved among nations. The trend of mobility and movement become more and more frequent nowadays (Porter 1990).

Demand conditions

Porter’s diamond mainly focused on aspect of differences. According to Porter (1990), the nation inner demand could help the firms to shape their perceptions, interpret their respondent to domestic buyers’ needs. This forced home country firms to continually innovate and upgrade their competitive positions to meet higher standards in terms of product quality, features and service demands. Porter (1990a, 1998a) regarded the essential demand was home demand that anticipated and led international demand; industry segmented with a significant share of home demand. The new trade theories proved that demand conditions always existed huge differences among nations, which directly led to the differences among individual demand structures and economic returns. An industry’s competitive advantage could be influenced by its geographic location. The specific locations led to specific demand conditions. The advantages from the specific demand conditions were difficult to be copied by the competitors from other locations (Krugman & Obstfeld 2003). For example, Japan was the leading nation in compact products because of its home market demand; large home demand on long distances transport made USA’s engine industry got competitiveness in the global market. It mentioned by Davies and Ellis in 2000 that if home market could meet to all the demand conditions, which would be highly

The industry was relatively more important in India than in the USA and attracted the best resources in India. In the USA, scarce resources were moving to higher value-added industries where they commanded higher returns. It opened up opportunities for the Indian software industry. In India, As of highly paid job generator, the IT industry attracted the best resources within the nation. This was a case where the USA had a strong diamond in this industry but where Indian had a comparative advantage. This demonstrated the difference between the meaning of ‘competitive advantage’ (strong diamonds) and ‘comparative advantage’. Following Porter’s diamond concept, India must involve advanced factor conditions, sophisticated demand and strong related and support industries to establish the preferred location for software development. However, based on basic factor conditions, India shouldn’t be the location of choice (Kogut 1997). However, India do have a comparative advantage in the software industry, this did not imply that a firm that relocates its software development to India will gain with respect to the international competitiveness in software