Criticism of Porter’s Model of National Competitive Advantage

This study focuses on discussing the criticism of Porter’s model of national competitive advantage. In order to fully discuss the limitations of Porter’s model of national competitive advantage, the determinants in Porter’s diamond model should be explained. Therefore Porter’s diamond model and its elements are analyzed in the first part of the study while rest of the study is explaining the limitations of the Porter’s diamond model that are late development theory, the role of the state, multinational enterprises, foreign direct investment, national competitiveness and history.

Porter’s Diamond Model of National Competitive Advantage

Porter’s diamond model, introduced by Michael Porter (1990a) was created to understand the ways and the reasons firms and industries create competitive advantage. The model consists of four key elements: Factor condition, demand conditions, related and supporting industries, and firm strategy, structure and rivalry that includes two additional determinants, government and chance. (Porter, 1990a; Stone and Ranchodd, 2006; Dixit and Joshi, 2011).

The first determinant – factor conditions, explains the necessary inputs for production such as capital, natural resources and their accessibility, human capital, technology, science, markets and finally geopolitical position of the nation (Porter, 1990a).

The second element of Porter’s diamond model investigates the local demand conditions such as the size of domestic market, type of domestic customers, potential of domestic buyers and the transferability of the domestic demand into foreign markets (Dixit and Joshi, 2011; Wu, 2006)

The third determinant of the diamond – related and supporting industries looks at the industry suppliers and...

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Moreover, China is the best example for how important is the government’s role in nations economy. Chinese government have created national team to focus on specific sectors such as electronics and automobile. (Sutherland,2003). As a result of this strategy, China became the biggest automobile manufacturer in the world by the end of 2012. Also, Chinese government is very successful to control financial markets and it owns 3 of top 10 banks in the world. On the other hand, in another growing state, India, government is applying different strategy rather than Chinese government that is based over encouraging foreign direct investments into the state by lowering tariffs. Eventually India has joined the top ten automobile manufacturers in the world and net profit of the companies has slightly increased by the end of this process (Sardy and Fetscherin, 2009)