10 January 2006

Porter's Diamond of National Advantage (Part II)

The Diamond as a System
  • The effect of one point depends on the others. For example, factor disadvantages will not lead firms to innovate unless there is sufficient rivalry.
  • The diamond also is a self-reinforcing system. For example, a high level of rivalry often leads to the formation of unique specialized factors.
Government's Role

The role of government in the model is to:
  • Encourage companies to raise their performance, for example by enforcing strict product standards.
  • Stimulate early demand for advanced products.
  • Focus on specialized factor creation.
  • Stimulate local rivalry by limiting direct cooperation and enforcing antitrust regulations.
Application to the Japanese Fax Machine Industry

The Japanese facsimile industry illustrates the diamond of national advantage. Japanese firms achieved dominance is this industry for the following reasons:
  • Japanese factor conditions: Japan has a relatively high number of electrical engineers per capita.
  • Japanese demand conditions: The Japanese market was very demanding because of the written language.
  • Large number of related and supporting industries with good technology, for example, good miniaturized components since there is less space in Japan.
  • Domestic rivalry in the Japanese fax machine industry pushed innovation and resulted in rapid cost reductions.
  • Government support - NTT (the state-owned telecom company) changed its cumbersome approval requirements for each installation to a more general type approval.

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