In international business theory there are a number of useful models for the external environment analysis of specific countries. These methods can be applied by companies that aim to internationalise and so to define the right location(s) abroad in terms of institutional as well as cultural fit and success opportunities. Correspondingly, concepts like this also provide insightful information for explaining the location choices which organisations have already made. One such framework is the so called Diamond Model introduced by Michael Porter in 1990. This essay tries to determine its advantages and disadvantages as a tool for the examination of firm‟s home and host location decisions by focusing on two major MNEs: the world‟s second-largest high-street retailer –French Carrefour and UK‟s famous Marks & Spencer Porter s Diamond Model(1990: 73) argues that “nation‟s competitiveness depends on the capacity of its industry to innovate and upgrade” and therefore is determined by a nation‟s level of productivity. From an organisational perspective this means that national competitive advantage depends on the nations ability to provide a home base for companies to sustainably improve their products and services in terms of quality, features, technology and so to successfully compete in highly productive industries internationally. Hence, the advantage of the framework is that it identifies four important, interrelated factors that create and illustrate the essential national environment where companies are born, grow and build sustainable competitive

advantages (Porter, 1990: 78). The concept is then quite useful for companies to perform the necessary research and identify which countries would be most suitable for internationalisation.
The first determinant, factor conditions, are the factors of production such as land, raw materials, capital, infrastructure etc., that are not inherited, but developed and improved by a nation e.g. skilled labour (Porter, 1990: 79). Thus, sustaining competitive advantage depends on the factor creation ability. For instance, Carrefour was originally family-owned but when it decided to internationalise, a high amount of capital was needed so it went public in 1970 to support itself financially (Shiue, Horngand Yeh, 2006: 2).The second driver is demand conditions, i.e. the existence of sophisticated anddemanding customers that pressure companies to create new products to meetgrowing buyers‟ needs
(Porter, 1990: 82). Thus, organisations discover new trendsand exceed customer expectations by innovating. This is indeed the case of Carrefour when pioneering in 1963 the hypermarket concept creating an entirely newway of shopping where customers can buy everything from groceries and clothing toelectronics under one roof (Verdict, 2010). Furthermore, mature demand andsaturated markets should rather be an incentive to innovate. Again in Carrefour‟s case, because of the growing number of single households and smaller families, which results into a “smaller shopping basket” and a reduced relianc e onhypermarkets, the retailer has now introduced its new stores –
Carrefour Planet
3
,(Verdict, 2010: 4).Related and supporting industries are the next factor, which represents the presenceof e.g. capable suppliers, also competitive on a global scale (Porter, 1990: 82).Establishing good relationships with partners within highly developed clusters of industries provides companies with some significant mutual benefits such as better and faster information and communication, cooperation and support, know-how andexchange of ideas. Those industries are very much dependent on each other throughout the whole supply chain for mutual profit realisation. For instance, due tostrong competition, M&S has recently pressed suppliers to a 1.25% turnover

3 contribution with the group claiming that their growth mainly depends on retail salesand so suppliers do not really have a choice but to accept those terms (FinancialTimes, 2011). Or, when M&S switched to low-cost providers in the late 1990s andbasically destroyed its long-term relationships with previous suppliers, it damaged itsreputation enormously (Mellahi, Jackson and Sparks, 2002: 23). Another example that illustrates the importance of related industries is Carrefour‟s failure in the US because it was unable to get favourable prices from suppliers and to keep its low-cost margin (Shiue, Y., Horngand Yeh, 2006: 5).The last part of the diamond is firm strategy, structure and rivalry, i.e. the choice of organisational structure and management style and the nature of domesticcompetition (Porter, 1990: 82). In the internationalisation process this determinantindicates if companies have found a fit between their own characteristics and those of the industry they have entered. Here
Carrefour‟s winning international strategy isnamely decentralisation by letting store managers to make their own decisionsaccording to local markets and traditions (Cambra-Fierro and Ruiz-Benítez, 2011:151).
In the late 1990s M&S‟ s EU expansion failed because the company wasimplementing its tried and tested in the UK strategy with a strong emphasis on aBritish brand and no localisation (Free Case Study, 2011). Further, rivalry is arguablythe most important factor in the creation of competitive advantage, because astronger competition has powerful stimulating and learning effects for innovations.Hence, rivalry is seen as positive, because it pushes organisations to anticipatetrends and satisfy non-existing needs yet as well as to seek new internationalopportunities. A go od example here is Apple‟s iPhone, iPod and iPad.In addition, the model puts emphasis on how home locations affect companies togrow and develop competitive advantages, i.e. how the own nation „prepares‟ them for internationalisation. Hence, the diamond helps to identify home-basedadvantages and then to exploit them abroad. Some may also need to redefine,rediscover their core competences at home as it is in the example of M&S, thatwithdrew all its EU and US stores in the beginning of the new millennium to focus onits core market, the UK, but has recently started an expansion again (Collier, 2007).France as a home base has proved to be a very good place to prepare Carrefour toexpand in similar markets such as Brazil, Spain etc. This might explain the fact thatnew or differentiated products are usually introduced and tested first at home. For

4 instance, Carrefour Discount brand was originally developed for the French market,but now successfully expands to Belgium, Italy and Spain (Verdict, 2010: 19).On the other hand, the diamond does not include the influence of governments andchance even though they are discussed in Porter‟s book
. Nevertheless, governmentscan influence all other factors through e.g. regulations, trade barriers, incentives etc.For example, in many European countries government legislation for smaller storesvery much affected Carrefour
‟s
EU expansion so that it had to come up with a newstore format (Verdict, 2010: 4). Especially in emerging economies nowadaysgovernments play a significant role in factor creation (e.g. infrastructure, health care,education) and can influence the internationalisation process of organisations. For instance, this factor was certainly considered by both M&S and Carrefour in Chinabecause for its nation‟s business protection the government hardly allows wholly-owned subsidiaries, but MNEs must rather form a joint venture with a Chinesecompany, which is basically the only way of entering the Chinese market.Furthermore, chance events such as wars are a considerable factor too because theycannot be controlled by companies. Another current unpredicted event is the debtcrisis in Europe and the rather weak European Union which now has an enormousimpact on businesses. For instance, after years of non-presence in the Frenchmarket because of past failure, M&S opened a store in Paris this November withrather disappointing results (Peacock, 2011). This could be due to the currentproblems of the EU. So, it is questionable whether M&S has chosen the right momentto internationalise, but also the right location.Moreover, the framework does not really consider culture as a driver. Culture thoughis probably one of the most important factors that define a nation and its way of doingbusiness. Demand conditions and customer needs are very much impacted byculture such as for example food habits (e.g. fast food in the US). Culturalimplications and differences need to be considered when going abroad to see if thereis a possibility of transferring identified needs at home or if localisation is needed. For the understanding of cultural impacts
, Hofstede‟s dimensions
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could be used. An example here would be Carrefour‟s deci sion to first expand into culturally similar
4
www.geert-hofstede.com

5 locations such as Belgium, Spain and Brazil (Frynas and Mellahi, 2011) which according to Hofstede‟s dimensions have very similar scores.
Consequently I think that for the understanding and choice of home and host locationthe model should only be a starting point of the environmental analysis, i.e. aresearch on a macro level, but it should then be followed by a more thoroughresearch on a meso (e.g. competitor analysis
, Porter‟s Five Forces
) and micro (e.g.value chain analysis, cultural analysis) level (Hollensen, 2011: 104). Even thoughsuch researches are very costly and time-consuming, they are necessary for makingthe right decision because location is crucial for international success. If not, a failurebecause of a wrong location would be even more costly as in the case of M&S whenit closed all its stores in the US. That is why additional models should be used togather more in-depth and purposeful information on exact needs and industrycharacteristics in order to explain what is behind organisational location decisions.In conclusion, no model can be perfect and in fact, no model actually is simplybecause countries and companies differ fundamentally and no generalisation ispossible. All environmental analysis frameworks have missing considerations. What matters from a company‟s perspective however is the combination of the right modelsthat best fit to its own needs and capabilities for sufficient results.
Porter‟s Diamond
Model alone is not enough for fully making or explaining the decision where tointernationalise. It is however an excellent starting point because it provides the basicselection criteria for understanding home and host locations and how to build andexploit competitive advantages.

* 1. Threat of New Entrants
An example is web design, as there are independents in every location. This is an easy market to enter with few requirements, other than skills, initiative and relevant hardware and software. This does mean there are many new entrants! * 2 . Buyer Power
An example is the grocery sector since supermarkets tend to retain power over suppliers due to volume and price of contracts. They dictate terms, set prices and can possibly end agreements at any time. * 3. Threat of Substitution
The substitute to all services is DIY. For example hairdressing or writing a will. Focus is on expertise, customer service or added value. * 4. Supplier power
Some sectors have monopolistic (one) or oligopolistic (few) suppliers, such as utility companies. Sometimes customers have little choice i.e. where to buy domestic water suppliers though this is changing.
In the jewellery sector, diamond suppliers often hold the power and can set prices, withhold supply and restrict sales. * 5. Competitive rivalry
These include Estate agents, web design and office stationary. Many competitors often buy on price.
What to watch for?
Sometimes not all the information is available and you may need to make assumptions, which should be shared. For example it’s difficult getting specific market information on parts of the Middle East and China.
Our free models guide gives more details on how the Internet has affected this balance of power.
Original Sources
Porter, M. (1979). How Competitive Forces Shape Strategy. Harvard Business Review. (Vol 57, March – April). p.86-93.

The concepts like international success, national environment and the competitiveness are the concepts who have references of several parameters. Although to understand these kinds of parameters, the theory of flexibility is useful but somehow Porter’s Diamond Theory also suggests about these parameters. The research showed data about the shrimp industry of India with their business environments.

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Ever since Michael Porter came up with his work of competitive advantage along with the ‘diamond’, many authors and school of thought have criticized his theory as they find it vague , dangerous or incomplete in its explanation. This criticism resolves around a number of assumptions that underlie it. As described by Krugman (1994a), the main risk with respect to the belief that countries compete is the misunderstanding that countries, like companies, are somehow in competition with one another. More important, the abuse by special interest groups, the potential role of predatory trade policies and the budget constraint still apply. Furthermore, the welfare effects of trade intervention based on external economies are far more ambiguous than the effects of comparative advantage and internal economies of scale, and may lead to a distortion of specialisation patterns for a specific country (Krugman & Obstfeld 2003). Criticism of the ‘Diamond Theory’ comes from two perspectives: from within the management school (Rugman 1991; Dunning 1992, 1993; Cartwright 1993; Rugman & Verbeke 1993; Bellak & Weiss 1993; Rugman & D’Cruz 1993) and from the economic school (Waverman 1995; Jegers 1995; Davies & Ellis 2000; Boltho 1996).

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Criticism from the management school - suggests that the home diamond focus of Porter does not take the attributes of the home country’s largest trading partner into account (Rugman 1990), is not applicable to most of the world’s smaller nations (Bellak & Weiss 1993; Cartwright 1993) and ignores the role of multinational organisations in influencing the competitive success of nations (Dunning 1992, 1993. At the same time, the economic school states that the diamond is so general that by trying to explain all aspects of trade and competition, it ends up explaining nothing (Waverman (1995). As well, Porter (2004) has shifted his focus to productivity at locations that will improve the competiveness of companies located in those specific locations. Thus, if through these location, firms can increase their productivity, it will be good for that country, due to the fact that higher productivity always leads to higher levels of welfare. However, this does not mean, that the country thus becomes internationally competitive, even if the companies located there are internationally competitive. This is because productivity is purely a domestic matter and has nothing to do with the international competitiveness of a country (Krugman 1998).

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* 4. Apple Porter’s 5 forces Model 2 Rivalry •The Company •Competing companies 1 Threats of new Entrants 5 Buyer Power 3 Threats of Subtitutes Products or Services 4 Supplier Power * 5. • Apple dominates consumer electronics industry • Put relentless efforts on R&D • Each of the company’s products is unique • Threat of new entrants is very low due to apple is continously differentiate its products from its rivals. • Apple has wide spread production that it can produce at a lower cost due to Threats of new Entrants * 6. • Not a threat to apple due to introduction of iphone and ipad. • The rivals put the relentless effort such as R&D to introduce new product to ensure that they will be always the first and difference, but again apple has no issue with differences. They always be number 1 to introduce products like iphone(touch screen concept), ipad(the tablet) etc. Rivals * 7. • Examples of Subtitutes : • Ipod samsung mp3 player / Sony MP3 player • Ipad samsung tab • Iphonesamsung galaxy note / sony ericcson / nokia • Apple achieves economies of scales, enabling it to produce in lower cost • Apple market better than the competitor • Apple brand is well known and recognised brand Threats of Substitutes Products or Services * 8. • The supplier has some power due to they have the ability to supply the unique material to apple in the way for apple to produce the unique products Supplier Power * 9. • Not a threat to apple. • Apple has millions of buyers (individual and large corporations) • They have the ability to increase its prices of some products due to unique and well differentiated. • Apple need to ensure that the price increase is not too drastic Buyer Power * * * References: http://lloyd7160.blogspot.com/2013/02/apple-and-five-forces-model.html * 11. - Components generally obtained from multiple sources. - Hardware products are manufactured by outsourcing partner primary in Asia e.g. Foxconn. - Delegate raw materials acquisition : Works with its OEM partners to delegate the raw materials acquisition process but provides some supervision for quality control purpose - Automated receiving systems : Implemented sophisticated automated receiving systems to speed up the receiving process and reduce facility foot printand storage space requirement Inbound Logistic * 12. - Elimination of toxic substances in Apple products. Every product is free of BFRsand other harmful toxins, Apple have also qualified thousands of components to be free of elemental bromine and chlorine. - Products are designed highly recyclable aluminum enclosure. - Utilize original equipment manufacturers (OEM) ’s economies of scale - Apple outsources production to third party OEM partners to utilize their economies of scale while removing the burden of production management from the firm. Operations * 13. - Apple used variety of direct and indirect distribution channel, such as retail stores, online stores, 3rd party cellular network carriers, whole salers, retailers and value added resellers. - Continue to expand and improve its distribution capacities by expanding the number of its own retail stores worldwide in order to ensure a high quality buying experience for its product - Economical packing : Employed teams of design and engineering experts who develop product packaging that’s slim and light yet protective. Efficient packaging design not only reduces materials and waste, it also helps reduce the emissions produced during transportation. Outbound Logistic * 14. • Reasonable Pricing : Introduce their product with reasonable price • Brand Loyalty : Always make it as a different products compared to others • Retail Outlets : Allow the customer easy to obtain the products. Sales and Marketing