factors such as land and, specifically, labour and capital, Porter goes much
further. He agrees with them with respect to labour (which he calls human
resources), land (physical resources) and capital (capital resources), but in his
view these categories are much broader than the classic theories would suggest.
For example, while Ricardo principally saw labour as a large, undefined mass of
cheap workers, Porter emphasizes quality as well as quantity and divides human
resources ‘into a myriad of categories, such as toolmakers, electrical engineers
with PhDs, applications programmers, and so on’. Physical resources also cover
the location of a country with respect to its customers and suppliers, while
capital resources can be divided into ‘unsecured debt, secured debt, “junk”
bonds, equity and venture capital’. In addition to these ‘traditional’ production
factors, Porter also identifies knowledge resources and infrastructure as factors
which can be decisive for the competitive advantage of a country. He sees
knowledge resources as ‘the nation’s stock of scientific, technical and market
knowledge bearing on goods and services’, while infrastructure includes trans-
port and communications systems, the housing stock and cultural institutions.
The differences described in Parts 2 and 4 of this book with respect to education,
training, skills, industrial relations and motivation can all be seen as factor con-
ditions which influence a country’s competitive advantage.
Demand conditions
The second determinant consists of demand conditions. Traditional trade
theories tended to neglect the demand side. According to Porter, demand in
the home market can be highly important for a country’s national competitive
The International Division of Labour 21Related and
supporting
industriesFirm strategy,
structure, and
rivalryFactor
endowmentsDemand
conditionsPorter’s diamond (adapted from Porter, 1990)
FIGURE 1.2