Diamond Model
Porter's Diamond Model explains why some industries in a particular country become world-beating and others in the same country don't, by looking at four linked conditions rather than one advantage.
Four boxes sit at the points of a diamond, linked to each other; government and chance sit outside it, tilting all four rather than joining them as a fifth point.
Reach for this when…
- You're deciding where to locate production and 'lower cost' isn't the only real question.
- You want to know why a competitor's home industry keeps producing world-class firms.
- You're advising on industrial policy or a cluster strategy and need more than 'invest more'.
How to run it
- Assess factor conditions: the skills, infrastructure and inputs actually available, not just raw resources.
- Assess demand conditions: how sophisticated and demanding the home customers are.
- Map related and supporting industries: are there strong local suppliers and partners nearby.
- Look at firm strategy, structure and rivalry: does local competition push firms to get better.
- Weigh government and chance as forces that tilt the other four, not a fifth cause on its own.
A worked example
Situation. Moussa Diop runs a furniture export business near Dakar, Senegal, and was asked by an investor why Senegalese furniture manufacturing kept out-competing lower-wage rivals elsewhere, when labour cost alone said it shouldn't.
Applied. He walked the investor through the diamond: skilled joinery labour and good timber access, a demanding Western European export market, a dense cluster of component and hardware suppliers within a day's drive, and fierce local rivalry between hundreds of small manufacturers.
Result. The investor backed a plant expansion in the existing cluster rather than a cheaper greenfield site abroad, betting on the whole diamond rather than the wage line alone. Three years on, the cluster advantage held while the cheaper site struggled without the supporting network.
The catch
The model explains historical clusters well but is a poor predictor of where the next one will form, it's descriptive more than prescriptive. It was built for national industries, not individual firms, so applying it to a single company's choice needs care. It also says less about digital or globally distributed industries where 'home base' is a weaker idea than it was in 1990.
A country can have every factor condition right and still produce nothing world-class if local rivalry is weak, the diamond's points reinforce each other or none of them work alone.
Origin: Michael Porter