Porter-Diamond Model: Diamond Porter Model is presented by Michael Porter in his book The Competitive Advantage of Nations.

It helps in understanding the competitive position of a nation in the global world. Michael Porter integrated some knowledge of industrial economics and business strategy to come up with a comprehensive solution to complex problems in competitiveness. He believed that macroeconomic stability itself does not guarantee prosperity and so tried to give competitiveness a constantly evolving micro framework unlike macro overview of traditional theories. He clearly distinguished between the competitiveness of the firms from that of nations. In contrast to traditional theories of comparative advantage which focuses on countrys factor endowments of land, labour and capital, the diamond porter theory attempts to look at factors affecting immediate business environment and productive capacity of firms; factor input conditions, demand conditions, firm strategy and rivalry, and the presence of related and supporting industries. According to this theory, the process of economic development is about improving this diamond so as to achieve higher and sustainable productivity.

Hence from the diagram it can be clearly seen what four forces have comprised the Diamond Porter Model:

Factor endowments These are the essence of the Heckscher-Ohlin theory, but Porter distinguishes:
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basic factors - natural resources, demographics, climate and location, and advanced factors - communications, location, skilled labour, research and technological know-how.

Demand conditions Home demand shapes the product. Sophisticated and demanding consumers pressure local firms to make high quality products. Japan 's camera industry is the archetype of this. Related and supporting industries The network of suppliers and related industries which are internationally competitive has an spill-over effect. We see this in industry 'clusters' such as the German textile sector which includes manufacturers of high quality cotton, wool and synthetic fibres, sewing machine needles and textile machinery. Firm strategy, structure and rivalry Two points are relevant for this attribute:
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The quality of management. Porter notes that firms in the two outstanding post World War II 'economic miracles' - Germany and Japan - are dominated by engineers, unlike US companies which are usually headed by people with financial or marketing backgrounds. Domestic rivalry, which creates pressures to innovate, improve quality, reduce costs and invest in upgrading facilities.