Advantages and Disadvantages of Porter Diamond Model for International Business Strategy

This paper discusses the advantages and disadvantages of Porter Diamond Model for international business strategy. It explains the four key determinants of the model and highlights the case of Marks & Spencer and Adidas. The paper concludes that although the model includes significant determinants, it is not very useful in explaining home and host location strategies of international companies.

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There are several different theories and models that helps the business to understand
their competitive position and analyse their external environment in the international markets.
One of them is the Porter Diamond Model, which is also known as Porter Diamond Theory of
National Advantage and Porters double diamond model (Wilson 2016). However, there are
several business researchers and scholars who find this model to be not so useful concept in
explaining home and host location strategies for the international companies. This paper shall
elaborate on why this is the situation by determining both the advantages and the
disadvantages of this model for the examination of the home and the host locations by
highlighting the case of Marks & Spencer of United Kingdom and Adidas of Germany.
Porter Diamond Model has been developed by Michael porter who claims that the
competitiveness of a business is linked with the business performance. It is to note that he
have used the concept of clusters of the similar groups of product in developing the Porter
Diamond Model. In this product groups, there are some considerable competitive pressure
(Ortega-Colomer, Molina-Morales and Fernandez 2016). The businesses within such clusters
stimulate one another for increasing their productivity and fostering the innovation as well as
improving the results of the business. With the same, they also have the advantage of moving
well on the international boundaries as well as maintaining their presence and handling the
international competition there (Fang et al. 2018). One of the best examples of such large
clusters is the Hollywood film industry. However, it is to note that according to the Porter
Diamond Model, the competitiveness of the nation is based on the potential of its industry to
upgrade and innovate itself and therefore it is determined by the productivity level of the
nation (E. Dobbs 2014). Considering the same from the organisational perspective, it simply
means that the national competitive advantage of a company is based on the ability of the
nation to supply it technology, quality and features for successfully competing in the highly
productive industries globally (Kharub and Sharma 2017). Therefore, the significant

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advantage of Porter Diamond Model is that it identifies a total of four key determinants that
are interrelated with each other and create an important national environment when the firms
are born, develop, grow and build their sustainable competitive edge. These four
determinants are- a) factor conditions, b) related and supporting industries, c) home demand
conditions and d) strategy, structure and rivalry (Konsolas 2017).
According to Camagni (2017), factor conditions refer to the situation in a nation that
is related to the factors of production such as the infrastructure and knowledge. These are
some of the most appropriate elements for the competitiveness in some specific industries.
However, these can be structured into different knowledge resources; material resources such
as the human resources like qualifications, commitment and the labour cost; and
infrastructure. For example, Adidas was initially a private company but when it decided to
expand itself in international market, high amount of capital resource was necessary for it to
go public for supporting itself financially. However, it is also to mention that they also
comprise of the liquidity on the stock market and the quality of the research as well as the
natural resources such as minerals, climate and oil which be the reasons for the creation of
international competitive edge for a company.
The next determinant is that of the related and the supporting industries. It is to note
that the success of any market depend on the presences of the potential suppliers and the
other related industries within a particular area. It is the suppliers whose competitiveness
reinforce the internalisation and innovation. Along with this, the other related organisations
are important as well. The success of the company is beneficial for the other related
organisations and they can benefit from the know-how of one another and could also
encourage one another by means of production of complementary products (Fang et al.
2018). One of the best example to consider in this context is that of Marks & Spencer,
which, because of strong competitive market, has pressed its suppliers to about 1.25 percent

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turnover contribution with the group that claim their growth on the basis of retail sales.
Therefore, the suppliers do not have any other option other than accepting the terms.
The third determinant of Porter Diamond Model is the home demand conditions. In
this determinant, the key question is- what are the reasons that are there for a successful
market? What is the nature of the very market? What is the size of the market? It is to note
that there is always an existence of an interaction in between the cost of transportation, the
size of the home market as well as the economies of the scale (Huttasin, Mommaas and
Knippenberg 2015). This provides several advantages to the other firms to service the market
from one location. For instance, Adidas after splitting from Puma created a new way of
shopping where the customer can buy everything from footwear, accessories and apparel
from different top brands like Reebok, Runtastic etc.
The fourth determinant is that of the strategy, structure and rivalry. It is linked to the
manner by means of which a company is managed and organised, its organisational
objectives as well as the measure of the level of competitiveness or rivalry in its own
organisational culture. It emphasize on the conditions in a nation which determines where it
would be formed (Fainshmidt, Smith and Judge 2016). It is also to mention in this context
that the cultural aspects of the country in which the company is planning to expand its
business plays a very crucial part in this. The regions, countries and provinces might differ
greatly from each other. For example, in the late 1990s, the Europe expansion of Marks &
Spencer had failed due to the fact that the company was implementing its tries and tested UK
strategy with a powerful emphasis on no localisation and British brand (Notteboom and de
Langen 2015). With the same, the factors like the working morale, the level of interactions in
between the companies and the management process are also shaped in different ways in
different cultures. This could offer both advantages and disadvantages for the firms in
different situation during the setting up of the company in other nation. As per Michael

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Porter, continuous search of competitive advantage and the domestic rivalry within a country
could help an organisation to attain advantages on global scale.
The Porter Diamond Model helps an organisation to identify the factors that could
build advantages in national context. It emphasis on how the home locations influence the
firms in the process of their growth and development of competitive edge, for example, how
their home nation prepares them for the process of internationalisation (Fainshmidt, Smith
and Judge 2016). Therefore, it is to state that the Porter’s diamond model helps the firms in
identifying the home-based advantages and then in exploiting them in the foreign markets.
According to Michael Porter, all the above mentioned determinants are very conclusive for
the competitiveness of a firm in regard to its foreign competitors. By taking into
consideration all these determinants, a firm would be better able for formulating one strategic
goal. There are several companies who may find the necessity of redefining and
rediscovering their core competencies at the home country such as Marks and Spencer.
Markers and Spencer is one of those companies, which have withdrawn all its US and EU
stores in the starting of the new millennium for focusing on its key market- the United
Kingdom. However, it has very recently started an expansion once again.
However, although the model has different advantages of its own for the
internationalisation of companies in international borders, there are several disadvantages of
it as well. These disadvantages proves that it is not that useful concept in explaining home
and host location strategies of international companies (Tsiligiris 2018). It is to note that this
model does not mention the influence of governments and the opportunities, although they
are taken into consideration in Michael Porter’s book. Government has a very strong
influence on every company, whether it be in national boundaries or international one.
Factors such as trade barriers, incentives and governmental regulations etc. affects the
business operation of each and every company, especially in the emerging economies

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(Deresky 2017). The government plays a significant role in the emerging economies in this
contemporary world and it also plays a key role in factor creations such as infrastructure,
education and health care. With the same, it also can have a strong impact on the process of
internationalisation of different companies. For example, for the part of Marks and Spencer,
they can consider this factor in its expansion in China as for the business protection of its
nation, the government hardly permit the use of wholly owned subsidiaries. It should engage
itself in joint venturing with the Chinese companies that is the only way to enter into the
Chinese market. It is also to state that this model does not consider culture as one of the
significant drivers, although it is one of the most significant factors that determine a country
as well as its way of conducting business. As per Hwang and Seo (2016), culture influence
both the needs of the customers as well as the demand conditions such as the food habits of
the customers. For instance, the customers in United States prefer fast food a lot. With the
same, it is also to state that cultural differences and cultural implications is required to be
taken into consideration while expanding business in foreign countries to see whether or not
there is any possibility of the transformation of identifies needs at home or whether
localisation is necessary. In order to assess the cultural impacts, the companies could make
use of Hofstede’s dimensions.
It is also to mention that for a clear understanding of the host and home location, this
model is just a starting point of the environmental analysis. It should be followed by a much
more thorough research on the meso level such as the Porter’s five forces and the competitor
analysis. Although, these are time consuming and costly, they are indeed very necessary for
the making of right decision (Jarungkitkul and Sukcharoensin 2016). This is because location
is very important for a successful international expansion. Hence, more additional models
needs to use for gathering a more in-depth and more purposeful information.

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Hence, from the above analysis, it is to conclude that Porter’s Diamond model, though
include almost every significant determinants in the analysis of the competitive position and
external environment for a company, is not that useful concept in explaining home and host
location strategies of international companies. It is basically used by the companies for
internationalising and for defining the correct location in abroad in regard to institutional and
cultural fit along with various different opportunities for success but is not very advantageous
for the foreign companies to gather knowledge on the location strategies as it does not
consider culture and government as the influential determinants.

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