Diamond theory Essay Example | Topics and Well Written Essays - 2000 words

Diamond theory - Essay Example But heavy sustained investments lead to competitive advantage thru expansion or improved service facilities. Porter argues that a lack of resources often actually helps countries to become competitive. Abundance generates waste while scarcity generates an innovative mindset. Such countries innovate to overcome their problem of scarce resources. Examples: a) Switzerland was the first country to experience labour shortages. They abandoned labour-intensive watches and concentrated on innovative/high-end watches. b) Japan has high priced land and so its factory space is at a premium. This lead to just-in-time inventory techniques (Japanese firms can’t have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it, they innovated traditional inventory techniques). c) Sweden has a short building season and high construction costs. These two things combined created a need for pre-fabricated houses. b. Demand Conditions - Porter argues th at a sophisticated domestic market is an important element to producing competitiveness. Firms that face a sophisticated domestic market are likely to sell superior products because the customers demand higher quality and after sales services and a close proximity to such markets consumers enables the firm to better understand the needs and desires of the customers. If the nation’s discriminating values spread to other countries, then the local firms will have to be competitive in the global market to survive.