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Porter has devoted many of his studies to the creation and maintenance of the
competitive advantage of a nation.  In
his studies, Porter distances from classic economic theories and blatantly
states that the ability of a nation to possess a competitive advantage depends
on its ability to innovate and to be inimitable.

1.       Innovation allows companies to succeed in
international markets, especially when competitors are slow to respond to those
inventions that “anticipate both domestic and foreign needs”. (Porter M. E., 1990, p. 217) The ability to
innovate is central to a firm’s success; for example, the success of many
Japanese firms can be credited to their ability to continually create ideas
that suit the needs of global customers. 
Innovation will only lead to sustainable competitive ability if it is a
continuous process, otherwise rivals will be able to imitate ideas, overtake
the firm or render it less profitable. In addition, a firm wishing to promote a
nation’s competitive advantage must export its products, realizing
opportunities that exist beyond the home market.

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          Understanding the importance of
innovation in competitive advantage is only one piece of a complex puzzle.  Now that the need for innovation is clear,
one must also understand which factors harvest innovation and how clusters
strengthen these elements.  Porter uses a
Diamond Model to explain the attributes of nations that foster innovation, ease
barriers to change and attract successful firms from varying industries.  His four-attribute model includes factor
conditions, demand conditions, related and supporting industries and firm
strategy, and lastly structure and rivalry.        1.      Factors
of production constitute highly specialized and inimitable characteristics that
serve to distinguish one cluster from another (Porter M. E., 1990, p. 223) Factors, such as an
abundance of raw materials, can be easily imitated through sourcing, and so are
not sustainable methods of ensuring competitiveness.  In order for regions to be successful, they
must be able to create specialized factors and then work hard to upgrade them,
such as a strong telecommunications sector or being an outstanding producer of
a specialized good.

2.       Demand within a region also serves to
determine its competitive advantage. 
When customers are highly demanding and serve to forecast the future
conditions of global demand, they propel firms to create the highest quality of
products.  It should be noted, however,
that focusing too much on domestic demand can be destructive to a firm’s
competitiveness if that demand does not foretell or closely parallel
international needs.  Porter gives an
example of such a situation.  When demand
for defense weapons rose in the US scarce resources began to be devoted to
these desires. (Porter M. E., 1990, p. 228) As a result, the US
may have lost competitiveness in other, more international areas that required
these resources.  Sophisticated buyers
are also force firms to face challenges and to respond to advanced desires that
may reflect future market demand.

3.       Home-based suppliers who boast
international competitiveness serve to work with others in their own and
related industries to promote the creation of innovations within groups of
interrelated organizations.  The cooperation
of related industries can also aid in providing competitive advantages,
especially when it indirectly supports the creation of new skills in other
industries.  When both of these players
work together to promote the competitiveness of a region, they must have “short
lines of communication, quick and constant flow of information, and an ongoing
exchange of ideas and innovations”. (Porter M. E., 1990, p. 228) However, this is
only possible if all companies work together, which identifies the importance
of cooperative clusters and the advantages of geographical proximity.  In addition, internationally competitive
firms lead all members of related and supporting industries to gather knowledge
about worldwide needs and possibilities for advancement. 

4a.     The strategies and structures of firms will
depend largely on the trends that are located within a certain region, and
their appropriateness is determined by their ability to serve the industry in
which they are involved.  Porter argues
that there is no best way to organize and no best way to structure goals, but
that these factors will determine which industries a nation will be more likely
to succeed in.

4b.     Perhaps most important is the effect of
rivalry on innovation and competitiveness. 
It has an especially powerful stimulation effect on geographically
proximate firms as competition between these organizations becomes more
personal; instead of competing for market share, proximate firms also compete
for the same customers, the same workforce and the same scarce resources.  However, this stiff competition also forces
rivals to move beyond these sources of competitive advantage and to focus on
those that are more sustainable and create an inimitable and specialized set of
advantages within a region. (Porter M. E.,
1990, p. 232)
One can see that these characteristics reflect those of clusters.  As such, all firms within the cluster will
aim to be market leaders through constant innovations and more productive uses
of factor resources, as this is the only way to win the desired customers,
workers and resources.  Significantly,
the existence of clusters encourages new business formation which furthers
rivalry and competition.  Low barriers to
entry and the better ability of entrepreneurs to spot opportunities promote
formation.  Local rivalry also forces
firms to look to international markets so that they may gain access to other
customers when domestic ones have already been captured.

order to be successful, the four points of the diamond must work as a system,
supporting one another and spawning competitiveness through their
strengths.  Weakness in any link of the
diamond will affect other attributes and retard a region’s innovation and
competitiveness.  Rivalry is often the
force that holds all elements together and promotes success in other areas (

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