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In his seminal work, ‘The Competitive Advantage of Nations’ (1990), Harvard Business School professor Michael E. Porter provides illuminating insights into how nations can improve competitive advantage in an age of globalization. The conventional wisdom makes us believe that national boundaries and national governments are increasingly becoming redundant in an age of global free market. This, however, does not explain as to why some nations have a competitive advantage over others. Going against the conventional viewpoint, Porter brings his own innovative approach to the problem.
In order to explain as to why some nations gain competitive advantage over others, Porter carried out a four-year study of 10 countries and published his findings in the form of a book in the year 1990. In this book, Porter explains that companies gain advantage mainly because of innovation. Innovation can lead to competitive advantage by which one nation can outshine another. However, this is only possible when there is a presence of certain factors. According to Porter, there are four determinants of national competitive advantage. They are:
Together they make up a diamond like structure which Porter calls the Diamond of National Advantage. If companies can improve on each of the determinant, they can gain competitive advantage. However, in order for the diamond to work as a system, the individual companies, the company leaders and the national governments have to work in tandem.
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