In this essay I will explore how Porter’s diamond model explains the variations in national business systems and comparative economic performance for each nation and to what extent other ideas and approaches will be required. Porter introduced the diamond model of national competitive advantage (1990) to explain why a number of countries are more competitive than others and why a number of businesses within the countries are more competitive. The model proposes that the national home base of an industry plays an important role in achieving an advantage on a universal scale. This home base contributes the essential factors that will support the organisations in building advantages in global competition.

Porter (1990) identified four determinants in attaining a national competitive advantage he concludes that a combination of the four determinates within a nation has an enormous influence on the competitive strength of the firms located there. Porter (1990) argues that competitive industries take the form of specialised clusters of home based firms. Clusters are correlated through vertical relations such as buyers integrating with suppliers or through horizontal relations through customers, technology, skills, distribution channels etc (Chen et al 2008). These specialised clusters will enable a nation to create business system which will lead to competitive advantage and economic success. Japan’s automobile industry and US semiconductor industry have both been linked to Porter’s diamond model in creating unique business systems and competitive advantage over other industries.

Factor condition is the nation’s position on factors of production that is necessary to compete in a given industry, for example skilled labour or infrastructure. These national factors often provide initial advantages for the nation. Each nation possess particular factor conditions that are more favourable to develop business systems and industries For example, Japan’s large pool of engineers which is reflected by the number engineering graduates has been essential to Japan’s success in variety of manufacturing industries. Porter (1990) points out that these factors don’t have to be nature made or inherited could expand and change over time.