"The diamond model is an economical model developed by Michael Porter in his book TheCompetitive Advantage of Nations, where he published his theory of why particular industries become competitive in particular locations."[2]
It's all interrelated: just ignore the confusing arrows.
MY COMMENTS:
Though the diamond theory has been criticized (e.g. its lack of empiricism), I liked it precisely because Porter does not oversimplify things and create artificially simple mathematical models. My problem with The Competitive Advantage of Nations is that it is a bit repetitious, even though the repetitions do include lots of nice counterexamples to conventional wisdom. Just to give one odd one: Italian businesses suffer grievously from red tape in their domestic markets. However, according to Porter, this has allowed them to develop the skills needed to penetrate Middle Eastern markets which have their own byzantine regulations.
The other plus for me was that he focuses more on microeconomics rather than on macroeconomics as a means of succeeding internationally. In this vein, he points out that many businesses that have suffered from their nation's appreciating currency (e.g. Italy, Japan) have actually been forced to become more productive. On the other hand, businesses that simply rely on devaluations do not necessarily have the motivation to become more productive; instead they adopt the economically less demanding goal of lobbying for ever greater devaluations.
