Innovation Alphabet
Porter’s Diamond
in a nutshell
Marylin Monroe sang “Diamonds Are A Girl’s Best Friend”. Porter’s Diamond, instead, can be an entrepreneur’s best friend. It is a self-reinforcing system designed to analyze the performance of companies and study ways to achieve sustainable competitive advantage based on a nation’s ability to attract new businesses and invest resources.
Application Fields
• Economic theories: Micheal Porter is among the most celebrated economists ever, particularly in the theoretical field of management strategy. His “diamond” was created to illustrate the main factors that influence a country’s international advantage. But, by extension, it can help companies interpret the global economy with each state’s endogenous conditions in mind.
• Strategy: Not only theory, but also practice. The diamond is used as a framework in building a business strategy. It can calculate the intensity with which the market forces companies to compete aggressively and innovatively. Porter considers the fact that, often the structure of a company is determined by the social conventions of the country in which it is born (think of the Japanese example).
• Competitor analysis: As a manager ponders the possibility of landing the company in a foreign market, Porter’s Diamond is a useful tool for lucidly recognizing its positioning, potential opportunities, and possible risks. Rivalry and new challenges, however, can serve to improve the quality of the products manufactured and sold.
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Industries
• Porter’s Diamond in the automotive industry
Porter’s Diamond can help to understand the reasons behind the success of the German automotive company Audi in its own native country. First, there are no speed limits in Germany: customers are more likely to buy more powerful vehicles. In addition, the nation’s economic situation is particularly prosperous (or, at least, it was before the Covid-19 pandemic broke out). There are other highly specialized sectors that come to the rescue of the production chain, such as the computer industry, distributors of electronic components, or the banks themselves, in a position to provide capital.
• Porter’s Diamond in the fashion industry
France is a renowned country when it comes to fashion. In fact, the capital hosts one of the most awaited and followed Fashion Weeks. From Paris came some of the most famous international fashion houses, such as Louis Vuitton. The birth of the industry has historical origins: we have to go back to the 17th century, when King Louis XIV gave approval to the development of textile industries. France, then, is a highly competitive nation for the rise of clothing brands, and here clothing companies enjoy a certain international competitive advantage.
• Porter’s Diamond in the furniture industry
In choosing the placement of its stores, IKEA considers the urban design of the countries in which it is located. For example, in Europe, stores have been distributed mostly in the suburbs of large cities, yet in such a way they are still easily accessible and can provide free parking. In the Asian market, on the other hand, furniture stores are located in areas close to public transportation stops.
Business Functions
• Porter’s Diamond in support of the manufacturing sector
BMW is known as a globally prestigious brand in the automotive industry. Actually, it began as a manufacturer of aircraft engines. Following a careful analysis of the economic advantages offered by Germany, the company was able to take advantage of technological innovation and manpower to focus everything on automotives, which has, in fact, defined the company’s success.
• Porter’s Diamond in support of internationalization
As H&M, a Swedish clothing company, opened up to foreign markets, it had to consider the cultural specificities of Asian countries. Indeed, while in Europe a floral dress represents a common – if not trivial – summer choice, in Eastern culture it would be associated with the idea of death. Marketing managers, therefore, had to redesign (metaphorically and literally) the products according to the most appropriate style for the customs of the target markets.
• Porter’s Diamond in support of the supply chain
The Japanese company Honda’s suppliers are both numerous and quite diverse. Should a provider tend to demonstrate a prevaricating authoritarian force, negative consequences could result for the automaker. But the company, by constantly focusing on innovation and technology, has managed to gain an enviable competitive advantage and attractiveness. As a result, the dependency relationship is more unbalanced on the side of suppliers toward Honda than vice versa, and the authority of providers is definitely undermined.
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Augmented Reality
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Balanced Scorecard
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