Beyond The Diamond: Volume 5

Porter's single diamond home base framework needs to be extended to capture the reality of global strategic management within multinational enterprises (MNEs). Today many MNEs operate with multiple home bases as they seek to develop an appropriate balance of location bound firm specific advantages (LB-FSAs) and nonlocation bound firm specific advantages (NLB-FSAs). Such MNEs need to develop a “transnational network” in which complex organizational learning issues of isomorphism need to be resolved. We develop an organizing framework which permits analysis of both interorganizational and intraorganizational network issues within the context of single or multiple home bases. We use this to contrast strategies of isomorphic flexibility and institutionalization.

Within the context of an evolving economic order, the changing role of the multinational company captures the spotlight, especially in regard to the increasing importance of strategic decision making and networking and the more complete role taken up by subsidiaries. In this critical analysis of Porter's (1990) popular study of competitive advantages, it is posited that the international corporate activities are insufficiently incorporated and that the triadic dimension and economic bloc formation among countries are not sufficiently taken into account. As the drivers of the world economic “triadization,” many MNCs transform themselves into regional clusters rather than global or transnational structures. The triadic constellation requires more coordination from national governments in areas such as competition, merger activity, and research policy. To participate fully in the global economy, national governments are switching to macroorganizational policies that are proactive. The proliferation of strategic alliances among MNCs is creating special challenges to the competition policies of national governments. Now that the relative share of developing countries in the inward direct-investment flows is increasing again, the opening up of the Triad to developing countries may have begun.

Porter's Competitive Advantage of Nations is an important but ultimately unsatisfactory book; while the case studies are fascinating, as a whole the analysis is insufficiently theoretical and not empirically rigorous. The analysis of international competitiveness needs to better incorporate the scientific work of international economics, especially the lasting relevance of the theory of comparative advantage.

Porter's single, home-based, diamond is relevant for larger triad economies like the United States and Japan. For smaller countries a generalized double diamond approach is required. This approach requires analysis of both the home diamond of the small country and the diamond of its largest trading and investment partner. This new framework is applied to Canada and South Korea. The generalized double diamond is a better way to relate foreign direct investment and the role of government to the competitiveness of firms, industries and nations.

Porter's diamond model of national competitiveness is shown to be comparable to the traditional structure-conduct-performance paradigm of industrial economics. Subsequently, empirical findings relating to national competitiveness in the industrial economics literature are reviewed, after a brief review of direct competitiveness measurement. A number of mechanisms with regard to national competitiveness are observed: the negative influence of differentiation on import and export volumes, the attraction of noncompetitive market structures for potential importers, the disciplining effect of imports, and the positive effect of creating economies of scale on the import volume.

This paper addresses the interdependence of government policies and the economic order. This interdependence has been neglected in economics, which strongly affects the discussion concerning the competitive advantages of nations. To analyze the consequences of this neglect, the paper discusses the nature of an economic order and the functioning of the public sector from a political economic perspective. This is followed by a critique of Porter's analysis, and a discussion of some developments regarding the economic order.

This paper tackles the issues surrounding interactions among firm, industry, and government policy. It focuses on such concepts as company self-interest, industry interest, competitive advantage, and industrial policy of government. Basing their analysis on a descriptive model of strategy formulation, and stressing the importance of intra-organizational political behavior, the authors conclude that subjectivity and discrepancy of interests are major phenomena inherent in every proclaimed industry interest. A short analysis on the origins and dynamics of competitive advantage illustrates that the dexterity of a government to create sustainable competitive advantages for firms is questionable. Subsequently, the authors examine the various general options available to government, ranging from “shelter” policies to policies emphasizing the comparative advantages of a region or industry. In a final section, some reflections are offered on effective directions of an industrial policy by the government. A small case study on the attractiveness of the Belgian economy for foreign investors concludes the discussion.

The evolving economic order in Europe will be shaped by a combination of ex ante political harmonization and ex post harmonization as a result of institutional competition. In view of Porter's theory, emphasis has to be put on the latter. Moreover, a flexible view of European unification is needed. In this Porterian world, national governments will be forced to redefine their role and to shift their activities away from redistributive to allocational market-supporting activities.

This paper shows how European market integration can provide a better environment for European firms and promote the creation of stronger competitive advantages. The first part focuses on how European market integration changes the competitive process and influences both the corporate strategies and the internal organization of European firms. The second part deals with the ways in which the adjustment of corporate strategies influences restructuring within European industries through mergers, acquisitions, and cooperation agreements between firms. The last part compares empirical findings regarding mergers, acquisitions, and cooperative agreements with the theoretical arguments developed in the first two parts of the paper.