Porter's Diamond Theory example

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Porter's Diamond Theory

This report will discuss how Australia would be able to build sustainable, national competitive advantage in the construction industry. This paper will employ the Porter diamond theory of national competitive advantage as a basis for the analysis. To that end, this report will briefly outline the Porter diamond theory. Also, this paper will outline the current position and issues regarding the Australian construction industry. Finally, this report will outline and justify recommended strategies and governmental policies that would improve Australia’s position in the construction industry for the short and long term.

Brief Outline of the Key Theory

The key theory for this report is the Porter diamond theory of national competitive advantage. The Porter diamond provides an understanding of the competitive advantages that a nation or region may have. Also, the Porter diamond is instrumental in explaining what a government can do to improve a position of their country in a highly competitive world economy. Regarding the factors that contribute to a country’s competitive advantages, the Porter diamond is visualized as a rhomb, with four points representing four interrelated determinants, also
referred to as clusters. These four clusters include such factors as firm strategy, structure and rivalry; demand conditions; related supporting industry; and factor conditions (Porter, 2011, p. 135). The abovementioned
clusters are viewed as the critical factors of national competitive advantage. It is also important to view the diamond as a system. This means that all factors are interdependent and interconnected. An improvement of
one factor will lead to the improvement of another factor and vice versa. For example, a higher level of the rivalry will result in a stronger base of specialized factors.

Firm strategy, structure, and rivalry refer to the idea that a high level of competition forces companies to increase productivity and seek innovation. Also, the firm strategy is influenced by local conditions. It is necessary to understand that high local rivalry results in the less global rivalry (Porter, 2011, p. 137).

The cluster of demand conditions is concerned with the level of customer’s demand in the economy. As customers become more demanding, companies become facing greater pressure to increase their competitiveness. The competitive position of firms is highly subject to global trends. If a local market is large and trend-setting, local firms will better anticipate global trends. This means that a more demanding local market if compared to foreign markets, will lead to national competitive advantage (Porter, 2011, p. 141).

The cluster of related supporting industries is concerned with upstream and downstream industries that are instrumental for the exchange of information, ideas and innovation. In other words, if supporting industries, for example, the suppliers, are competitive, local firms …

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