Michael Porter, in his study of national competitive advantage, contends that the degree to which a nation is likely to achieve international success in a certain industry is a function of the combined impact of factor endowments, domestic demand conditions, related and supporting industries, and domestic rivalry.
A government can influence each of the four components of the diamond positively or negatively. It can shape domestic demand through local product standards or with regulations that mandate or influence buyer needs. The national competitive advantage is the sum of the company competitive advantages in a country.
Porter described four basis or factors that can influence the global competitiveness of companies located in particular countries. These four elements are factor endowments; demand conditions; related and supporting industries; and the strategy, structure and rivalry of the companies located in a country.
Porter created a model linking these four sources in a diamond (refer figure below) and argued that firms are most likely to succeed in industries or industry segments in which the four sources are favorable. He also argues that the sources in the diamond form a mutually reinforcing system in which the effect of one determinant or source is dependent on the state of the others.