The "Double Diamond" Model of International Competitiveness: The Canadian Experience

Article excerpt

Abstract

* Porter's home-base diamond model of international competitiveness is seriously flawed when applied to a small, open, trading economy like Canada's.

* Porter's framework needs to be adapted to explain Canada's successful resource-based multinationals, foreign subsidiaries and access to the triad market of the United States through the Free Trade Agreement. A new "double diamond" framework is developed to achieve this.

Key words

* Porter's single diamond model works for large triad economies but needs to be adapted for smaller countries like Canada.

Introduction

The influential Porter (1990) study on the determinants of international competitiveness suggests that the home country "diamond" is the source of competitive advantage for domestic firms. The competitive advantage of a firm depends upon one, or more, of the four key determinants of the nation's international competitiveness. The successful domestic firms build upon this home base and can then export or engage in outward foreign direct investment. In short, Porter's model states that a global firm needs to have a sustainable competitive advantage based on the successful utilization of components of its home country diamond.

The thesis of this article is that Porter's diamond framework explains the success of U.S., Japanese and E.C.-based multinationals, i.e. the triad. However, Porter's model is not applicable to small, open, trading economies which are not parts of this triad. For example, Rugrnan and D'Cruz (1991) have demonstrated that Canada's international competitiveness is not explained by the Porter home country diamond. They show that substantial modifications of the Porter framework are required to analyze the nature of Canada's foreign-owned firms and institutional arrangements, such as the Canada-U.S. Free Trade Agreement. The latter arrangement suggest that the Canadian diamond need to be considered jointly with the U.S. diamond, i.e. that the Canadian managers needs to operate in this "double diamond" framework. Indeed, Rugman and D'Cruz propose that a "North American diamond" be used by Canadian managers and policy makers-in searching for useful answers to the question of how to improve Canada's international competitiveness.

A similar insight emerges from the work of Cartwright (1991) in his assessment of the application of the Porter model in the New Zealand study. A team headed by Porter used the Porter single diamond theory as a benchmark for a study of the international competitiveness of New Zealand, see Crocombe, Enright and Porter (1991). In his critique, Cartwright demonstrates, using empirical judgemental impact scores, that a "double diamond" framework has much greater explanatory power in a New Zealand context than does Porter's home country diamond model Cartwright concludes that his results "cast serious doubt on the ability of the Porter diamond theory to account satisfactorily for the international competitiveness of land-based industries that must export a high proportion of their production" (Cartwright 1991, p. 7).

In a related, but independent, development Cho (1991) has also adapted the Porter diamond in order to better explain the role of inward foreign direct investment into Korea. Cho extends Porter's six factor model into a nine factor model and tests it to explain Japanese FDI (that by Japanese sogo-shoshas) in Korea, in relation to the performance of Japanese sogo-Shoshas in Korea, whereas the methodology of Porter (1990) would require the use of the Japanese diamond, not the Korean.

How, then, Should Porter's model be modified to explain the international competitiveness of small, open, trading nations such as Canada, New Zealand, and Korea? Here it is demonstrated that each country needs to set its own home-country diamond against the relevant "triad" diamond. In general, most Asia-Pacific nations will set theirs against Japan's. …