Porter's Diamond
Porter's Diamond explains why some countries or regions produce world-beating firms in a particular industry, through four linked conditions: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure and rivalry.
Four conditions sit at the corners of a diamond, each one connected to and reinforcing the others rather than standing alone.
Reach for this when…
- You are deciding whether to build a business in a cluster or go it alone somewhere cheaper.
- You want to know why competitors from one country keep out-innovating everyone else in your sector.
- You are advising on where to locate a plant or hub and price is not the only variable.
How to run it
- Map factor conditions: the skilled labour, infrastructure and capital actually available.
- Map demand conditions: how sophisticated and demanding local customers are.
- Map related and supporting industries: are there world-class suppliers nearby.
- Map firm strategy, structure and rivalry: how fiercely local firms compete with each other.
- Look at where the four reinforce each other, and where government or chance tipped the balance.
A worked example
Situation. Chanda Mwansa built a software services firm in Lusaka, Zambia, competing for the same regional clients as far cheaper offshore rivals.
Applied. Running the diamond on her own cluster, she found the real edge was not cost but a dense local supply of demanding fintech clients and a glut of well-trained engineers from three nearby universities.
Result. She stopped pitching on price, sold the cluster's depth of talent and client sophistication instead, and started winning against bigger, cheaper competitors.
The catch
The Diamond explains national or regional advantage, not one company's strategy, so it is easy to reach for on a problem that is really about your own firm. It is also backward-looking: it explains clusters that already exist better than it predicts ones still forming, and government and chance sit outside the model despite doing real work inside it.
A strong Diamond around you is not a strategy. It is terrain. What you do with it still has to be chosen.
Origin: Michael Porter