Competitive Advantage:
Porter’s Diamond
Source: Reprinted by permission of the Harvard Business Review. “The Competitive Advantage of Nations” by Michael E.
Porter,
March–April 1990, p. 77. Copyright © 1990 by The President and Fellows of Harvard College; all rights reserved.
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Factor Conditions
The Cornerstone of Porter’s Diamond


Basic Factors
 Derived from the country’s location
 Inherited
 Topography,climate, natural resources
 Can be a source of a nation’s competitive
advantage
 Lack of such resources can lead to innovation
Advanced Factors
 Those a country can mold
 Labor force, infrastructure
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Why Switzerland Makes Watches

Basic Factor Conditions
 Mostly mountainous
 Close to populated lowlands of Europe
 Transportation across mountains is expensive
 No mineral resources available
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Why Switzerland Makes Watches


Switzerland capitalized on its basic factor conditions to
develop advanced factor conditions
 Educated, skilled, specialized workforce
 Reliable transport system overcomes topographical
challenges
 Position of neutrality keeps trade relationships open
 Encourages high levels of savings to draw on
domestic and foreign savings in Switzerland
 Protects agriculture against foreign competition to
sustain food source independence
These actions have led to a competitive advantage in
watches, chocolate, cheese, and pharmaceuticals
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Location Affects Political
Relationships

Austria took advantage of its location to

increase trade with the east

become the principal financial intermediary
between western and eastern europe
strengthen its role as the regional headquarters
for international businesses operating in
Eastern Europe
 engage in passive processing

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Geographic Proximity
and Trade Relationships

Geographic proximity is often the major reason for
trade between nations
 Faster delivery, lower freight costs
 Major factor in formation of trade groups such as
EU, EFTA, and NAFTA
 Chile exports grapes, peaches, raspberries to the
U.S. November - March
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Mountains and Plains
Divide Markets

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

Spain: five regions with different cultures and three
different languages
Switzerland: half the size of Maine
 Four languages
 35 dialects
 Different TV and Media networks
China: dozens of languages
Colombia: four separate markets
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Climate


Climate refers to temperature, precipitation, and wind
Climate
 is the most important element of the physical
forces
 sets the limits on what people can do both
physically and economically
 influences economic development
 can impede distribution
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Energy

Renewable









Hydroelectric
Solar
Wind
Geothermal
Waves
Tides
Biomass (ethanol)
Ocean thermal energy
Non–Renewable




Petroleum
Nuclear Power
Coal
Natural Gas
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World Oil Reserves by Country
as of January, 2007 (billion barrels)
Prov e d
Res e rves
Res e rve to
Pro d ucti o n
Ratio (Ye ar s )
% Sha re o f
W orl d
Pro d ucti o n*
Ran k
Cou n tr y
1
Saudi A ra bia
26 2 .3
75
13 .3
2
Can a da
17 9 .2
10
1.8
3
Ira n
13 6 .3
83
5.7
4
Ira q
11 5 .0
168
2.6
5
Ku w ait
10 1 .5
110
3.5
6
UAE
97 .8
106
3.5
7
Vene z ue la
80 .0
107
2.7
8
Russia
60 .0
18
12 .6
9
Lib ya
41 .5
65
2.3
10
Niger ia
36 .2
37
3.6
11
Ka z akhst a n
30 .0
23
1.5
12
Unit e d St a tes
21 .8
11
7.2
13
China
16 .0
14
5.0
14
Qat a r
15 .2
50
1.2
Data source: Reserves: “Worldwide Look at Reserves and Production,” Oil & Gas Journal,
104:47(December 18, 2006), pp.24-25. From Energy Information Administration, World Oil Markets
Analysis to 2030, http://www.eia.doe.gov/emeu/international/oilreserves.html
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Kyoto Protocol

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
The Kyoto Protocol is the UN Framework
Convention on Climate Change
 A reduction of emission of gasses will lead to a
reduction in global warming
Prime global warming contributor: coal power plants
U.S. has no carbon dioxide emission regulation
 Texas would rank 8th in carbon dioxide
emissions, just behind Canada
U.S. and Kazakhstan are the only countries to have
signed but not ratified the agreement
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Largest Recoverable Coal
Reserves by Country
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Renewable Energy Share of Global
Final Energy Consumption 2006
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Innovation and Factor Conditions


According to Michael Porter, innovation has a large
role in the way natural resources contribute to a
country’s factor conditions
Alternative sources of energy like wind and solar
power become more attractive when oil prices rise
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Environmental Sustainability


Sustainability: maintaining something
A systems concept
 Environment, society, the economy, health
 Greenhouse gas produced in China and the
U.S. impacts people in France even though
France doesn’t produce greenhouse gas
 France uses nuclear power
 Nuclear power has its own environmental
implications
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Sustainable Business


A sustainable business refers to an economic state in
which the demands placed upon the environment by
people and commerce can be met without reducing
capacity of environment for future generations
Three characteristics of sustainable business practices
 Limits
 Interdependence
 Equity in distribution
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The Company in a Societal Context
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