National development and prosperity

Change is the second external factor in the model. Porter says that innovation and change are inseparably ties together and that change is an unnatural act, particularly in successful companies; powerful forces are at work to avoid and defeat it. Each of the four determinants mentioned above defines a point on the diamond of national advantage; the effect on one point often depends on the state of others. The points of the diamond are also self-reinforcing: they constitute a system.

According to Porter, two elements, domestic rivalry and geographic concentration have especially great power to transform the diamond into a system – domestic rivalry because it promotes improvement in all the other determinants and geographic concentration, because it increases and enlarges the interaction of the four separate influences. Porter also discuss about the clusters in the article. The diamond creates an environment that promotes clusters of competitive industries.

Competitive industries are not scattered without a reason throughout the economy, but are usually linked together through vertical (buyer – seller) or horizontal (common customers, technology, channels) relationships. They usually tend to be concentrated on geographically. Porter says that once the cluster forms, the whole group of industries becomes mutually supporting and the benefits flow forward, backward and horizontally in the cluster. At the end of the article Porter focuses on company agenda.

He says that competitive advantage arises from leadership that harnesses and amplifies the forces in the diamond to promote innovation and upgrading. Porter gives some examples of company policies that will support that effort. At the first he advises companies to create pressure for innovation. He says that company should seek out the pressure and challenge, not avoid them. Second policy that Porter introduces is to seek out the most capable competitors as motivators. Porter explains that by saying that to motivate organizational change, capable competitors and respected rivals can be seen a common enemy.

The third policy introduced is to establish early-warning systems. According to the article early-warning signals can be translated into early-mover advantages. The fourth policy includes the improvement the national diamond. Porter says that a part of a company's responsibility is to play an active role in forming clusters and to work with its home-nation buyers, suppliers, and channels to help them upgrade and extend their competitive advantages. Porter's fifth policy in the article welcomes domestic rivalry. According to author, to compete globally, a company needs capable domestic rivals and strong domestic rivalry.

The sixth policy advises company to globalize in order to tap selective advantages in other nations. Porter says that adopting a global perspective is important to creating competitive advantage, but relying on foreign activities that supplant domestic capabilities is always a second-best solution. Porter continues and says that the aim should be to upgrade home-base capabilities so that foreign activities are selective and supplemental only to over-all competitive advantage. The seventh issue discussed is the use of alliances. Porter advises companies to use alliances only selectively.

He says that alliances produce significant costs and these costs ultimately make most alliances short-term transitional devices, rather than long-term relationships. The last policy introduced advice multinational companies to locate the home base to support competitive advantage. According to the article, among the most important decisions for multinational companies is the nation in which to locate the home base for each distinct business. This is based on an argument, in which it is said that a company can have different home bases for different businesses or segments.

The article ends with a part in which Porter discuss about the role of the leadership. He says that today's competitive realities demand leadership. According to the author, leaders believe in change; they energize their organizations to innovate continuously; they recognize the importance of their home country as integral to their competitive success and work to upgrade it. Porter's Competitive Advantage by Nations: an assessment of Robert Grant In the article, Porter's competitive advantage of nations: an assessment, Grant assesses Porter's book competitive advantage of nations.

The point of this article was to analyse what new Porter's work has to add to the theory of international economics and strategic management. Grant thinks that Porter's book bridges the gab between strategic management and international economics while contributing substantially on both. He also says that the book broadens the scope of the theory of competitive strategy to encompass both the international dimension and the dynamic context of competition. He founds Porter's work to be notable because it broadly analyses the national level influences on firms' and nations' competitive performance on international level.

Porter's book contrasts with recent work of international trade area, but is in line with the traditional theory. Most import is Porter's emphasis upon dynamic determinants of competitive advantage particularly through innovation and investment in more complex factors of production. Porter's analytical framework provides a cogent explanation of competitive advantage within different industries and countries and also brings together the tree important levels: the firm, the industry and the nation.

According to Grant the breadth and relevance of Porter's theory do not come costless. The ambitious theoretical and empirical sweep of the analysis has been achieved at the expense of precision and determinacy. For example the concept upgrading of competitive advantage is ill-defined and the element of the diamond and their relationships are indeterminate. Grant thinks that in this analyse there is a general failure to perfectly reconcile micro-level analysis of competitive advantage of firms and industries with macro-level analysis of national development and prosperity (e.g. inconsistency in defining and measuring competitive advantage at industry and national level).

Grant thinks that the result is a theory, which is gloriously rich but hopelessly intractable and there are shortcomings both in theory, exposition and empirical analysis. The key weakness is that predictions are hard to do based on Porter's theory. Grant also claims that the empirical data has been chosen selectively and interpreted subjectively