Michael E Porter's Diamond Theory On International Trade

Earlier article refer to the theories of International trade.

Append below in salient points Porter’s Diamond Theory

Michael E Porter’s Diamond Theory:

Advocates the following:

  • A nation could create new advanced factor endowments like skilled labor, strong technology and knowledge base, government support and culture.
  • He used a diamond shaped diagram as the basis of framework to illustrate the determinants of national advantage consisting of Factor conditions, Demand conditions, Related and Supporting industries, and Firm strategy.
  • Using the four conditions and interact them will assure success in international trade

Porter’s Diamond Theory on The Four Determinants And Interaction For Success In International Trade:

Factor Conditions:

  • Based on the view of Heckcher-Ohlin theory re: the perspective of classical factor endowments like land, labor and capital but Porter’s Diamond, extended the issues into factors of innovation, creativity, quality and training

Demand Conditions:

  • Based on new trends of consumer preferences
  • Examples like the using of the Internet(eBay, Amazon.com is becoming popular for the purchase and sale of on-products & services to meet the needs of domestic and international markets)


Related and Supporting Industries:

  • Refer to the increase in the number of suppliers to meet the industry production, marketing and distribution needs every time a new industry emerges.


Firm Strategy, Structure And Rivalry:

  • Important when competing in world markets as firms must be able to create strategies and continually provide high quality goods and services to stay ahead.
  • Important for firms to are competing internationally to be on pars with competitors on areas like research and development, advertising, promotion, branding, staff training and others


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