The approach looks at clusters, a number of small industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts. The Porter analysis was made in two steps. First, clusters of successful industries have been mapped in 10 important trading nations. In the second, the history of competition in particular industries is examined to clarify the dynamic process by which competitive advantage was created. The second step in Porter's analysis deals with the dynamic process by which competitive advantage is created. The basic ...view middle of the document...
 But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness.
Government can influence each of the above four determinants of competitiveness. Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level.
Chance events are occurrences that are outside of control of a firm. They are important because they create discontinuities in which some gain competitive positions and some lose.
The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs.
In his famous book, The Competitive Advantage of Nations, Porter studied eight developed countries and two newly industrialized countries (NICs). The latter two are Korea and Singapore. Porter is quite optimistic about the future of the Korean economy. He argues that Korea may well reach true advanced status in the next decade (p. 383). In contrast, Porter is less optimistic about Singapore. In his view, Singapore will remain a factor-driven economy (p. 566) which reflects an early stage of economic development. Since the publication of Porter's work, however, Singapore has been more successful than Korea. This difference in performance raises important questions regarding the validity of Porter's diamond model of a nation's competitiveness.
Porter has used the diamond model when consulting with the governments of Canada and New Zealand. While the variables of Porter's diamond model are useful terms of reference when analysing a nation's competitiveness, a weakness of Porter's work is his exclusive focus on the 'home base' concept. In the case of Canada, Porter did not adequately consider the nature of multinational activities. In the case of New Zealand, the Porter model could not explain the success of export-dependent and resource-based industries. Therefore, applications of Porter's home-based diamond require careful consideration and appropriate modification.
In Porter's single home-based diamond approach, a firm's capabilities to tap into the location advantages of other nations are viewed as very limited. Rugman has demonstrated that a much more relevant concept prevails in small, open economies, namely the 'double diamond' model. For example, in the case of Canada, an integrated North American diamond (including both Canada and the United States), not just a Canadian one, is more relevant. The double diamond model, developed by Rugman and D'Cruz, suggests that managers build upon both domestic and foreign diamonds to become globally competitive in terms of survival, profitability, and growth. While the Rugman and D'Cruz North American diamond framework fits well for Canada and New Zealand, it does not...