This effect is strengthened when the suppliers themselves are strong global competitors.
4. Firm Strategy, Structure, and Rivalry
National performance in particular sectors is inevitably related to the strategies and the
structure of the firms in that sector. The structure and management systems of firms in
different countries can potentially affect competitiveness.
For example, German firms are oftentimes very hierarchical, which has resulted in
advantages within industries such as engineering. In comparison, Danish firms are
oftentimes more flat and organic, which leads to advantages within industries such as
biochemistry and design.
Competition plays a big role in driving innovation and the subsequent upgrade of
. Since domestic competition is more direct and impacts earlier
than steps taken by foreign competitors, the stimulus provided by them is higher in terms
of innovation and efficiency. If rivalry in the domestic market is very fierce, companies
may build up capabilities that can act as competitive advantages on a global scale.
Home markets with less rivalry may therefore be counterproductive, and act as a barrier
in the generating of global competitive advantages such as innovation and development.
As an example, the
Japanese automobile industry
with eight major competitors (
) provide intense
competition in the domestic market, as well as the foreign markets in which they
By using Porter's diamond, business leaders may analyze which competitive factors may
reside in their company's home country, and which of these factors may be exploited to
gain global competitive advantages. Business leaders can also use the Porter's diamond
model during a phase of internationalization, in which leaders may use the model to
analyze whether or not the home market factors support the process of
internationalization, and whether or not the conditions found in the home country are
able to create competitive advantages on a global scale. Finally, business leaders may
use this model to asses in which counties to invest and to assess which countries are
most likely to be able to sustain growth and development.