Diamond Framework
A nation’s competitiveness is determined by the competitiveness of the companies in its sectors. The NCCs analysis makes use of the Diamond Framework developed by Michael E. Porter, Bishop William Lawrence Professor a Harvard Business School.
Please click on any the different parts of the diamond for further explanation.
Factor conditions
Refer to the presence or absence of inputs such as a workforce with specialized skills, the availability of particular raw materials, physical infrastructure, financing etc. Factor inputs are not static, but can be continuously upgraded and become more specialized over time – for example, companies can invest in training employees to upgrade skills and improve productivity.
Context for Firm Strategy and Rivalry
Refers to the competition between companies in a cluster, sector, or industry. Competition provides an incentive for innovation and increased business sophistication, as firms strive to capture market share from competitors and boost profit margins. To create strong, globally competitive corporations, policies must be in place that expose firms to competition and thus sharpen company strategy, provide incentives to improve the quality of goods and services in order to capture greater market share.
Demand
The demand element of the diamond assesses market needs and evaluates the sophistication of customers. Demanding customers stimulate innovation and increase rivalry between firms. The presence or absence of consumer and customer protections, and the ease with which imported goods and services are available fuel or stifle demand.
Supporting and Related Industries
Measures the extent and sophistication of cluster formation. Clusters consist of multiple, geographically close and interconnected industries, companies and associated institutions that have common and complementary goals. Clusters enhance productivity and competitiveness by exposure to best practices, stimulating innovation and creating new business opportunities. Universities and industry associations play a key role in building and disseminating this knowledge.
Clusters
The formation of clusters increases in importance as an economy moves through the different stages of economic development. Innovation takes place in well-developed clusters that have clearly defined competitive advantages and well-established related and supporting industries. Clusters benefit from both collaboration and competition. In particular, cluster formation demonstrates that competition is not a zero-sum game. Rather, the competitiveness of related firms is enhanced by efficiency spill-overs in the cluster. Petrochemicals and its supporting industries (engineering services, equipment and machinery suppliers and R&D organizations) is an example of a developing cluster in the Kingdom.
Intense interaction between customers, producers, suppliers, and institutions at a cluster level enhances competitiveness by:
- Increasing productivity and efficiency through visible exposure to best practices across firms
- Stimulating innovation through identification of opportunities and accelerating knowledge creation
- Facilitating commercialization of new products and services and creating opportunities for new and supplementary business formation
Government
The Diamond Framework also recognizes that government has a key role to play in promoting competitiveness. For example, the public sector can: sponsor specialized education and training programs or invest in infrastructure (factor conditions); eliminate barriers to local competition through deregulation or changes to the regulatory environment (firm strategy and rivalry); act as a consumer of products and services (demand); and develop platforms that bring together supplier and industry participants (related and supporting industries) to enhance the competitiveness of its economy.
Institutions for Collaboration
Finally institutions for collaboration play a role in coordinating efforts between the public and private sectors and academia. Councils, universities, trade associations, and chambers of commerce are useful platforms for bringing together key stakeholders to develop a common competitiveness strategy and agenda. Partnerships developed through these institutions enhance linkages between institutions and individuals, and facilitate the creation and flow of information.
About National Competitiveness
What is National Competitiveness
Stages of Economic Development
How Competitiveness is Assessed