NATIONAL COMPETITIVENESS AND PORTER’S
DIAMOND MODEL: THE ROLE OF MNE PENETRATION
AND GOVERNANCE QUALITY
STAV FAINSHMIDT,1* ADAM SMITH,2 and WILLIAM Q. JUDGE3
1Department of Management and International Business, College of Business, Florida
International University, Miami, Florida, U.S.A.
2Department of Management, Arkansas State University, Jonesboro, Arkansas, U.S.A.
3Department of Management, Strome College of Business, Old Dominion University,
Norfolk, Virginia, U.S.A.
Plain language summary: This study examines how national competitiveness, measured
as productivity per worker, is fostered within an economy using a sample of 90 developed
and developing economies. We build upon Porter’s popular Diamond Model, but extend it
by adding the quality of public governance and extent of multinational enterprise penetration as two additional elements. Our study shows that not all four elements of the original
Diamond Model are required for an economy to be competitive. Instead, we find that there
are four distinct paths to high levels of national competitiveness. Context for intense rivalry among firms appears in all four paths. Results also suggest that public governance
quality is key to national competitiveness. The extent of multinational enterprise penetration, however, is not.
Technical summary: We examine Porter’s Diamond Model in conjunction with multinational enterprise (MNE) penetration and governance quality as a system of elements that
collectively affect national competitiveness. Utilizing fuzzy-set analysis and data on 90 nations, we identify four configurations sufficient for high national competitiveness, all of
which exhibit high governance quality as a core condition. In these four configurations,
the extent of MNE penetration is either absent or does not matter, and strength in all Diamond Model elements is neither necessary nor sufficient for high national competitiveness. Uncovering these patterns allows us to advance a more comprehensive theoretical
framework emphasizing public governance and the ways in which elements of the Diamond Model, governance quality, and MNE penetration combine as complements or substitutes to affect national competitiveness. Copyright © 2016 Strategic Management
Society.
INTRODUCTION
Michael Porter’s Diamond Model (Porter, 1990), ‘the
most popular competitiveness theory currently available’ (Zhang and London, 2013: 95), provides a
framework for understanding differences in national
competitiveness levels. Unfortunately, despite the
plethora of citations and dozens of case studies (e.g.,
Keywords: national competitiveness; Diamond Model; fuzzy-set
analysis; MNE penetration; governance quality
*Correspondence to: Stav Fainshmidt, Department of Management and International Business, College of Business, Florida International University, Miami, FL 33174, U.S.A. E-mail:
[email protected]
Global Strategy Journal
Global Strategy Journal, 6: 81–104 (2016)
Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1116
Copyright © 2016 Strategic Management Society
Hemphill and White, 2013: Moon, Rugman, and
Verbeke, 1998), numerous open questions and criticisms remain. In particular, global empirical evaluations of the Diamond Model and its proposed
theoretical extensions have been largely absent to
date, as the model continues to be criticized for its
overly domestic focus and oversight of the direct importance of national institutions. This may be due to
several problems with Porter’s model, such as an uneven level of analysis, the vagueness of his national
competitiveness construct, and the challenges associated with empirically evaluating such a complex and
interdependent system (Davies and Ellis, 2000).
To help address these shortcomings in the literature,
we draw on Porter’s original theory as well as subsequent developments and critiques to refine and extend
theory on national competitiveness. Specifically, we focus our attention on two salient issues pertaining to the
Diamond Model-national competitiveness relationship:
(1) multinational enterprise (MNE) penetration; and (2)
public governance quality. While Porter’s original formulation recognizes these elements and subsequent literature posits that any model of national
competitiveness ought to accommodate for the roles
of MNEs and government institutions (Dunning,
1992), to date we do not have convincing evidence
and theory about whether and how governance quality,
the presence of MNEs, and elements of the Diamond
Model interact to affect national competitiveness.
With regard to MNE penetration, we know that
MNEs and their foreign subsidiaries can enhance a
domestic economy through resource transfers, knowledge spillovers, and increased competition (Li, Li, and
Shapiro, 2012). However, some scholars have pointed
out instances where MNE presence actually limits
productivity growth (e.g., Schneider, 2013; Spencer,
2008) or benefits local productivity only if other elements that increase absorptive capacity are present
(e.g., Gugler and Brunner, 2007; Chittoor, Aulakh,
and Ray, 2015). Indeed, the role of inward foreign direct investment in facilitating national competitiveness
has been debated not only within the Diamond Model
literature (e.g., Davies and Ellis, 2000; Barclay and
Gray, 2001), but in the international business literature
at large (e.g., Gugler and Brunner, 2007; Garcia, Jin
and Salomon 2013). As such, an examination of the
ways in which inward MNE penetration interacts with
Diamond Model elements to facilitate national competitiveness provides valuable theoretical insights to
the literature.
Similarly, we argue that explicitly considering the
unique role that public governance quality plays in
combination with the Diamond Model, rather than
treating it as a background construct as Porter originally proposed, improves accuracy and generalizability of the Diamond Model. In his original
formulation, Porter (1990) views government narrowly as a background condition that shapes the four
elements of the Diamond Model (Rugman, Oh, and
Lim, 2012). Our conceptualization of governance
quality puts it in the foreground, elaborating public
governance dimensions that can serve to directly reduce economic costs and/or generate economic benefits that are unique from the Diamond Model, hence
increasing national competitiveness. In other words,
we explore the notion that governance quality is related to the four Diamond elements, but we also consider that it has a unique, direct, and interactive
impact beyond the indirect effects.
By examining inward MNE penetration and governance quality in conjunction with the Diamond
Model, we evaluate critiques of Porter’s model and
provide a comprehensive perspective on Porter’s original theory regarding the drivers of national competitiveness. To do so, we utilize data on 90 nations and
turn to a configurational methodology—fuzzy-set
qualitative comparative analysis (fsQCA) (cf. Ragin,
2006). FsQCA provides a platform to evaluate an entire system of interrelated elements, in addition to the
association between each element and the outcome
(e.g., Misangyi and Acharya, 2014; Crilly, 2011). Importantly, this methodological approach aligns with
Porter’s description of the Diamond Model as an integrated system of mutually reinforcing elements,
whereby a country’s factor endowments, demand conditions, context for rivalry, and strength of clusters
collectively interact to affect national competitiveness
(Porter, 1990).
Our study adds value to existing literature by explicitly considering the role of MNE penetration and governance quality in conjunction with the Diamond Model
and empirically demonstrates the equifinal ways in
which this model is related to national competitiveness.
Such an approach allows us to advance more accurate
and nuanced theory on national competitiveness by
shedding light on the ways in which governance institutions, MNE penetration, and elements of the Diamond Model interact as complements or substitutes.
With more up-to-date theory, public policy makers
and global strategy scholars can provide useful insights
into generating national competitiveness.
Additionally, we contribute to the literature by
examining the Diamond Model-national competitiveness link at the country level. This is important given
82 S. Fainshmidt, A. Smith, and W. Q. Judge
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DOI: 10.1002/gsj.1116
that organizations internationalizing from the same
home country tend to share similarities in strategic behavior and capabilities (Dunning and Lundan, 2010;
Guillén and García-Canal, 2009; Jacobides and
Kudina, 2013), as varying home country settings create heterogeneity in bundles of organizational resources (Cuervo-Cazurra and Genc, 2008; Hall and
Soskice, 2001; Luo and Wang, 2012; Peng, Wang,
and Jiang, 2008; Teece, 2014; Wielemaker and
Gedajlovic, 2011). Thus, our study advances understanding of national competitiveness and, consequently, the context within which organizational
competitive advantage is forged (Chakrabarti, Vidal,
and Mitchell, 2011; Moon et al., 1998). As such, this
study offers valuable new insights to global strategists
as well.
THEORETICAL FRAMEWORK
The essence of national competitiveness
Prior inquiries have conceptualized and measured national competitiveness in many ways (McFetridge,
1995; Berger, 2008). Scholars have utilized national
export performance (Grein and Craig, 1996), national
productivity (Moon et al., 1998), firm-level foreign
sales (Rugman et al., 2012), and industry-level performance metrics (Öz, 2004; Pajunen and Airo, 2013;
Sakakibara and Porter, 2001; Järvinen et al., 2009).
While nations do not go ‘out of business’ when
performing poorly (Krugman, 1994), relative success
on various country-level competitiveness outcomes
can be observed (Camagni, 2002; Dunn, 1994;
Malecki, 2004). Notably, Boulouta and Pitelis (2014:
351) recently argued that ‘a country can be defined
as being more competitive, if it outperforms other
countries, on the basis of its capability to improve
the shared indicator(s).’
Despite the varied measures employed in previous
work, most of the studies within the national competitiveness research stream focus on productivity—national output per unit of input—as the best indicator
of national competitiveness (e.g., Scott and Lodge,
1985; Wilson, Lindbergh, and Graff, 2014; Berger,
2008; Moon et al., 1998; Boulouta and Pitelis, 2014).
Our approach here is in line with these studies and Porter (1998: 160), who subsequently argued that ‘the only
meaningful concept of competitiveness at the national
level is productivity.’ This notion is consistent with
other studies positioning aggregate productivity as the
essence of the national competitiveness concept (e.g.,
Aiginger, 2006; Blaine, 1993; Furman, Porter, and
Stern, 2002; O’Donnell and Blumentritt, 1999; Porter,
2013; Porter and Ketels, 2003; Schwab, 2009; Scott
and Lodge, 1985; Wilson et al., 2014; Zinnes, Eilat,
and Sachs, 2001).
According to Scott (1985: 14), ‘National competitiveness refers to a nation’s ability to produce, distribute, and service goods in the international economy in
competition with goods and services produced in
other countries, and to do so in a way that earns a rising standard of living.’ Indeed, in a recent testimony to
the House Committee on Small Business in the U.S.
Congress, Porter maintained that, ‘To be competitive…the United States requires a business environment that enables businesses and citizens to be
highly productive’ (Porter, 2013: 3). Similarly, the
World Economic Forum (Schwab, 2009), the European Commission (2008), and the Organisation for
Economic Co-operation and Development (OECD)
(Hatzichronoglou, 1996) define national competitiveness in terms of aggregate productivity and its associated living standards.
Thus, while the concept of competitiveness may
mean different things at different levels of analysis
(Berger, 2008), ‘the key concept in the national competitiveness definitions…seems to be the ability of
the firms within a nation to increase their productivity,
which leads to the accrual of economic benefits by the
residents of the nation.’ From that perspective, organizational productivity improvements lay the foundations that serve as the primary path to enhancing the
economic standard of living for a nation’s citizens.
The Diamond Model: a framework for understanding national competitiveness
Porter (1990) originally argued that four elements,
graphically depicted as a diamond, collectively interact with each other to determine national competitiveness. These include: factor conditions, demand
conditions, related and supporting industries, and context for rivalry, with government and ‘chance’ operating in the background.
Factor conditions
According to Porter (1990: 71), factor conditions refer
to ‘the nation’s position in factors of production, such
as skilled labor or infrastructure.’ Historically, national factors of production have included such things
as physical, human, and financial resources available
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to economic entities, as well as the overall quality of
infrastructure provided by its transportation, communication, education, and health care systems. In essence, these resources provide the building blocks of
value creation and productive activities. However,
Porter (1990) also argued that advanced factors, such
as knowledge and human capital, are more important
than basic factors, which is even more so the case in
today’s information-based global economy.
Demand conditions
The second element of the Diamond Model highlights
a country’s demand conditions, particularly the relative level of sophistication demonstrated by consumers within a national economy. Based on his 100
case studies, Porter argued that when domestic demand conditions are relatively sophisticated and there
is an overall expectation for ‘high quality’ goods and
services, domestic firms are more likely to respond
by upgrading their productive capabilities. A sophisticated market, then, can serve as a pull factor, rewarding organizations for producing world-class products
or services. In sum, demanding consumers compel organizations to become more sophisticated and are,
thus, conducive to high national competitiveness.
Related and supporting industries
The third element of the Diamond Model addresses
the extent to which the nation possesses clusters of sophisticated supplier and related industries—‘those in
which firms can coordinate or share activities in the
value chain when competing, or those which involve
products that are complementary…’ (Porter, 1990:
105). The presence of ‘advanced clusters’ helps organizations move to emerging technologies so they become or remain world class. According to Furman,
Porter, and Stern (2002: 903), clusters of world-class
organizations across value chains ‘generate positive
externalities both from knowledge spillovers, transactional efficiencies, and cluster-level scale economies.’
Thus, an ecosystem of complementary advanced industries produces economy-enriching technology
spillovers and productivity enhancements (Cantwell
and Mudambi, 2011; Phene and Tallman, 2014).
Context for rivalry
This element focuses on the industrial context in
which firms are created, organized, and managed,
resulting in an overall level of domestic rivalry within
and across industries. Porter observed that when domestic rivalry is fierce, the firms that survive often perform better in the global economy. This occurs
because fierce competition, often creating a ‘Red
Queen’ effect (Derfus et al., 2008), pushes organizations to develop more effective strategies and renew
productive capabilities to remain competitive. That
is, in a society with fierce industrial competition, continuous improvement is always a central goal and,
consequently, productivity rises. In contrast, national
champions who are protected from competition are
less pressed to continuously improve productivity,
which often renders them unsuccessful when they
venture into global competition (Flannery, 2014).
Consequently, these companies are less effective in
creating value for an economy and raising its citizens’
standard of living.
The Diamond Model: extant literature and
outstanding issues
Since 1990, Porter’s Diamond Model has been evaluated many times in a wide variety of contexts. Its most
common application within the national
competiveness sphere has been in analyzing the
strength of a single country or a few nations and suggesting paths for improvement. Specifically, scholars
have used the Diamond Model to examine the national
competitiveness of the United Kingdom (Porter and
Ketels, 2003), Ireland (Clancy et al., 2001), Mexico
(Hodgetts, 1993), Turkey (Öz, 2002), China (Karjula,
2013), Ghana (Hoefter, 2001), and other nations (e.g.,
Bellak and Weiss, 1993; Van Wyk, 2010; Moon et al.,
1998; Rugman and D’Cruz, 1991; Cho, 1994;
Delgado and Ketels, 2011; Wilson et al., 2014;
Järvinen et al., 2009). Such empirical studies were
very much in line with Porter’s original approach
(1990), which used case studies from 10 countries as
its primary evidence. However, Grant (1991) lamented that such an approach may lack in accuracy
and generalizability (see also Smit, 2010). Further,
Davies and Ellis (2000) argue that there are other ways
to achieve competiveness without a strong Diamond
Model, but do not empirically test their claims.
While comparative, global, and rigorous examinations of the Diamond Model have been rare, there
have been a few empirical attempts to utilize it to help
explain a broad assortment of national outcomes. For
example, Grein and Craig (1996) found broad empirical support for the empirical relevance of factor conditions to GDP per capita, but did not examine the
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DOI: 10.1002/gsj.1116
Diamond’s other elements. More recently, Gugler and
Brunner (2007) showed how inward FDI can only aid
in economic development in countries with relatively
strong Diamonds. Finally, Delgado et al. (2012) focus
on the independent importance of various Diamond
Model and related elements to national competitiveness, yet these authors overlook their systemic nature.
To the best of our knowledge, no prior studies have
attempted to systematically evaluate the comprehensive nature and predictions of the Diamond Model in
a wide range of economies. Furthermore, the many
qualitative case studies have produced equivocal findings; and numerous open questions and criticisms remain. While we recognize that scholars have
extensively critiqued the Diamond Model from a wide
variety of perspectives, we focus our attention on three
of the most salient and oft-repeated points.
First, Porter (1990: 278) originally defined national
competitiveness as a country’s ability to produce ‘at
least one domestically based industry that possessed
a competitive advantage relative to the best worldwide
competition.’1 While this definition positioned the
Diamond Model as an industry-level framework, Porter’s original conceptualization suffered by combining
industry- and country-level arguments (Davies and Ellis, 2000). Subsequent works (e.g., Moon et al., 1998;
Delgado et al., 2012; Wilson et al., 2014) have shown
that the model is applicable not only to individual industries within countries, but also to studying national
competitiveness expressed in terms of aggregate productivity. Indeed, Porter himself refocused attention
to the national level in his subsequent work (Delgado
et al., 2012; Porter et al., 2008; Porter, 2009; Porter
and Rivkin, 2012; World Economic Forum, 2013a).
Thus, while initially developed as an industry-level
framework, application of the Diamond Model is at
least equally appropriate at the aggregate, country
level, depending on the question at hand. Indeed, Porter (1990) drew many country-level conclusions in his
original writings.
Second, several international business scholars have
criticized the Diamond Model for its overly domestic
focus (e.g., Rugman and D’Cruz, 1993; Dunning,
1992; Rugman, 1991). This has led to the development
of the ‘Double Diamond’ and ‘Multiple Diamond’
frameworks where adjacent and internationally-linked
economies are considered when examining national
competitiveness (Brouthers and Brouthers, 1997).
Indeed, Dunning (1992) maintains that not considering
inward MNE penetration is a serious flaw of the Diamond Model. For instance, foreign MNEs can change
the domestic economic landscape and provide different
resources and capabilities, as well as use them differently than can domestic firms and, thus, complement
or substitute for local conditions (Bellak and Weiss,
1993; D’Agostino and Santangelo, 2012). Therefore,
any model of national competitiveness ought to accommodate the role of inward MNE penetration ‘as a distinctive exogenous variable’ (Dunning, 1992: 142).
A third prevailing critique pertains to the role of
public governance within the Diamond Model. In Porter’s (1990) original formulation, societal institutions
are an indirect factor in explaining national competitiveness. That is, government affects the four Diamond
elements, which then translate into national competitiveness. However, as Griffiths and Zammuto (2005:
823) noted, variation in national competitiveness across
countries in the face of increasing exposure to international competition ‘have resulted in renewed interest
in the institutional governance systems that generate
national competitive advantage.’ Furthermore, several
studies have documented a significant relationship between governance quality and national economic prosperity (Acemoglu, Aghion, and Violante, 2001; Hall
and Jones, 1999). The role of governance quality may
be particularly important when the Diamond Model is
extended beyond developed economies to consider
both developed and developing economies. In subsequent literature, Porter (1998: 11-12) himself notes that:
‘Governments have a great stake in the influence of location in competition, because it is governments that
are directly responsible for improving the well-being
of citizens in particular geographic areas. Governments all over the world have acutely felt the pressure
of competition from other states and nations to attract
the investments of international companies…One clear
implication of the new thinking is a more important
role for local and state governments in economic policy than has been typical.’
We next discuss the theoretical implications of
these issues in the following section.
The roles of MNE penetration and governance quality
MNE penetration
It is undoubtedly the case that MNEs consider a
country’s productivity—and for that matter, its underlying drivers—when engaging in foreign direct
1 Empirically, he examined export market share of each countryindustry as a proxy for its extent of competitive advantage in the
focal global industry.
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investment (Dunning, 1980; Pajunen, 2008). Additionally, extant literature examines how MNEs affect the
local context in which they invest, demonstrating that,
in many cases, ‘foreign-owned firms within a nation
also contribute in important ways to the international
competitiveness of the host nation’ (O’Donnell and
Blumentritt, 1999: 190). The inward FDI literature is
vast and diverse, but we are particularly interested in
whether MNE penetration—the extent of inbound
MNE presence relative to national economic activity
—provides exogenous productivity gains to a nation.
The FDI spillover research stream mainly argues that
MNE penetration boosts local productivity through resource, technology, and managerial know-how transfers;
enhanced competition and imitation; and increased labor
force participation (see Görg and Greenaway, 2003 for
an excellent review). Haskel, Pereira, and Slaughter
(2002) examined manufacturing plants in the U.K. and
found that labor productivity of domestic firms was
higher in areas where foreign affiliates were more prevalent. Further, MNE penetration allows for interactions
with local clusters that often result in innovation
(Almeida, 1996). The recent success of FDI-heavy economies, such as Singapore and Hong Kong, provide
strong cases for the benefits of MNE penetration.
However, others have presented a much more skeptical view of the productivity enhancements that inward MNE penetration offers. According to Luiz and
Stewart (2014: 387), ‘MNEs can reinforce the vicious
cycle of underdevelopment, institutional weakness,
and corruption or can, through their influence on institutions, create a virtuous reinforcing cycle which promotes good corporate policy and development.’
Similarly, Hanson (2001) maintains that companies
such as General Motors and Ford have not delivered
on the expected local productivity improvements.
MNE presence may also thwart domestic competition by driving local firms out of business, which may
dampen productivity on the whole (Aitken and Harrison, 1999). Girma, Greenaway, and Wakelin (2001)
similarly find some negative evidence for wage growth
among U.K. firms in the presence of more MNE activity and Garcia-Castro, Aguilera, and Arino (2013) reveal that MNE penetration into Spain was negatively
associated with the ex post innovation of local firms,
owing to the MNEs’ ‘market stealing’ and the higher
labor and resource costs resulting for domestic firms
(also see Pathak, Laplume, and Xavier-Oliveira, 2015).
Literature on MNE penetration points to the complex interactions between MNEs and the local context
(Haskel et al., 2002; Greckhamer, 2016). For instance,
Chung (1997) shows that FDI technological spillovers
benefit host country productivity only in conjunction
with a relatively weaker local competition. Schneider
(2013) points out that an atomized labor market creates
high turnover and low incentives to invest in human
capital, and lower human capital reinforces low technology investment by diversified business groups and
MNEs. As Görg and Greenaway (2003) note, equal degrees of MNE penetration may yield opposite results,
depending on the context or host country in question.
In a similar vein, Girma and Wakelin (2002) document positive spillovers only when the local firms are
reasonably technologically sophisticated. And, Gugler
and Brunner (2007) maintain that MNE penetration
can benefit local productivity more if there is sufficient absorptive capacity to leverage spillovers. Such
absorptive capacity is inextricably related to levels of
human capital, possibilities for entrepreneurial activity, state capacity, and knowledge flows via clusters,
many of which are captured by a nation’s Diamond.
Clearly, MNE penetration affects and is affected by
the elements within the Diamond Model, but the specific influence within certain contexts is yet to be identified. Therefore, there is a compelling need to
consider inward MNE penetration in interaction with
the Diamond Model, in order to have a more properly
specified framework for national competitiveness.
Governance quality
Porter (1990) originally argued that governmental institutions affect a nation’s competitiveness indirectly. Specifically, Porter (1990: 73) argued that ‘antitrust policy
affects domestic rivalry. Regulation can alter home demand conditions. Investments in education can change
factor conditions.’ Furthermore, others have argued that
capable and effective governments can induce the economy with human capital and other resources, reduce red
tape for new venture creation, and generally improve
the context in which competition takes place (Delgado
et al., 2012; Lazzarini, 2015). All of these government
influences play a role in influencing the individual elements of the national Diamond which, in turn, influences national competitiveness.2
2 Institutions affect and interact with MNE penetration as well
(Pajunen, 2008). For instance, prior studies show that foreign direct
investment prefers stable societies where the future is more knowable (Fabry and Zeghni, 2002). Further, Greckhamer (2016: 798)
maintains that strong public institutions complement human capital
such that, ‘foreign capital penetration has been linked to high productivity and high value-added strategies.’ Conversely, where public governance is weaker, MNE penetration may reinforce an
existing elite, limiting national productivity growth.
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Past research, however, has challenged Porter’s argument for an indirect government role (e.g.,
Metcalfe, 1991; Wickham, 2005; Rugman et al.,
2012). As a result, we explore the notion that the effects of government institutions may go beyond
strengthening the Diamond’s elements and have a
unique and direct effect on national competitiveness.
For instance, Parayil (2005) argued that Singapore became nationally competitive through a dominant, yet
highly stable and capable state. Along similar lines,
Wickham (2005) argued that the Australian government played a distinct role over and above strengthening the Diamond in bringing about innovation in
certain high-tech industries. On the other end of the
spectrum, Russia has struggled with its competitiveness despite possessing vast natural resources, a
highly educated population, and cutting-edge technologies; the absence of effective public governance is
often cited as the predominant reason (Puffer and McCarthy, 2007).
North (1993) likened organizations to players competing in a game, arguing that strong players can still
fail to perform well when strong institutions, the rules
of the competitive game, are not in place. Thus, the
quality of public governance may also interact with elements of the Diamond Model and may be directly
linked with national competitiveness. As an example,
South Africa has achieved strength in many of the elements of the Diamond, such as context for rivalry (as
we will show later in this article). However, such a
strong context for rivalry has not led to high national
competitiveness because relatively lower governance
quality has led organizations to channel their resources
and competitive actions toward acting politically
rather than toward innovation and increased efficiency
(Butler, 2009).
Consequently, we argue that there are three distinctive, yet overlapping, ways in which government institutions may add value to the national economic system
directly (other than strengthening the elements of the
national Diamond). First, political stability may increase national competitiveness by decreasing the uncertainty surrounding the implementation of
government laws and policies. Unstable governments
may create perceptions of cynicism and pessimism
among citizens (Pelletier and Bligh, 2006), directly reducing economic activity and trust, resulting in a
lower standard of living. Political instability threatens
economic transactions such that contractual obligations may not be honored over long time horizons.
‘To promote economic growth, governments must…
make a convincing and credible commitment that the
policies will be maintained in the future.’ (Gwartney,
Holcombe, and Lawson, 2004: 206). If there is a high
probability of political turmoil, actors will shape their
resource allocation decision accordingly (e.g., Hoffmann, Trautmann, and Hamprecht, 2009; Huang
et al., 2015).
Prior work has shown that political instability has a
strong and significant dampening impact on economic
growth (Alesina et al., 1996). Argentina, a prominent
example, was among the world’s strongest economic
powers throughout the first half of the twentieth century but has since fallen on hard times, lagging behind
other Latin American countries such as Chile, due to
high levels of turmoil, periodic coup de tats, and even
revolutions. On the other hand, Asian tigers, like Japan, South Korea, and Singapore have enacted extremely stable political environments. Accordingly,
higher political stability can increase national competitiveness via paths external to the Diamond.
A second major channel for government institutions’ impact may be through the property rights protection offered through a strong rule of law, which
serves to reduce transaction costs (North, 1992;
Williamson, 2000). In technologically advanced organizations, asset specificity is key to competitive advantage (Poppo and Zenger, 1998). However,
proprietary assets are also vulnerable to opportunistic
behavior. Property rights protection has been linked
to more reliable and efficient economic activity by reducing uncertainty and opportunism (De Soto, 2000).
In response to these safeguards, entrepreneurial individuals channel their efforts in more productive directions (Sobel, 2008). Khanna and Palepu (1997), for
instance, document that firms in emerging markets
are forced to pursue unrelated diversification in response to the high transaction costs in such contexts,
which certainly has implications for firms’ ability to
develop world class specific and core capabilities.
Consequently, governments’ ability to ensure property rights which enhance transactional efficiency, is
another channel external to the Diamond influencing
national competitiveness.
Finally, control of corruption is another means by
which government may directly influence national
competitiveness (Chikán, 2008; Delgado et al.,
2012). Corruption reduces entrepreneurship and innovation because these activities often require government services, such as permits, patents, and import
quotas. Since demand for these endorsements is high,
their dissemination tends to be marked by corruption
in many societies (Mo, 2001). Rather than innovation
and production, talent and effort will be allocated to
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rent-seeking activities (Bowen and De Clercq, 2008).
Corporate political behavior is often necessary
(Boddewyn and Brewer, 1994) yet developing political capabilities is a cost imposed upon organizations
as resources could have been otherwise allocated to
productivity enhancing activities (Millar et al., 2005).
Overall, governance quality may serve to directly
reduce economic costs and promote stability. As a result, we explore the notion that governance quality is
not merely a background construct as Porter originally
argued. Instead, it should be included as an element of
a national competitiveness model because it can exerts
a unique and interactive influence on national competitiveness in conjunction with Porter’s Diamond
elements.
Summary
Our discussion indicates that a more complete model
of national competitiveness calls for the incorporation
of MNE penetration and governance quality, which
may act as both catalysts and contingencies interacting
with elements of the Diamond Model. That is, the elements of the Diamond Model, MNE penetration, and
governance quality are all interdependent in nature.
This thinking is consistent with Porter’s original argument that the Diamond Model is ‘a system in which
the role of any determinant cannot be viewed in isolation’ (Porter, 1990: 99); but we go beyond Porter by
adding two additional elements into our framework.3
While prior research has certainly acknowledged
the systemic nature of the Diamond Model and other
elements within a nation (e.g., Öz, 2004), its configurational nature remains unclear. Therefore, we seek to
shed light on these interplays among elements of the
Diamond Model, MNE penetration, and governance
quality using set-theoretic methods (Ragin, 2000).
Doing so allows us to uncover how these interrelated
elements combine in a complementary or functionally
substituting manner into configurations that shape
national competitiveness. Next we describe our
empirical efforts to uncover these complex multicontingencies using fsQCA.
DATA AND METHODOLOGY
Sample and measures
We utilize country-level archival data from seven
sources: The World Bank’s (1) World Development
xIndicators,2013b (2) Doing Business Survey, and
(3) World Governance Indicators; the World Economic Forum’s (4) Human Capital Report and (5)
Executive Opinion Survey (EOS); the OECD’s (6)
Cluster Scoreboard; and the United Nation’s (7) Center for Trade and Development. In Table 1, we provide detailed information about data sources and
measurements for each construct. We started with a
comprehensive list of all world economies, but we removed countries with missing data, those that are
competitive anomalies (e.g., the Cayman Islands),
and those that make up less than 0.03 percent of world
GDP (e.g., Malawi). This screening procedure yielded
90 nations representing more than 97 percent of World
GDP for our analyses. Data for causal conditions are
for the year 2012, while we incorporate a one-year
lag for the outcome variable, measured in 2013.
National competitiveness
Consistent with prior work (e.g., Hall and Jones, 1999;
Delgado et al., 2012), we used data on GDP adjusted
for purchasing power parity (PPP) per worker from
The World Bank to capture organizational productivity and wealth creation for a country’s citizens. GDP
(PPP) per worker (i.e., labor productivity) is measured
as GDP (PPP) divided by persons employed, who are
older than 15 years of age. Much prior work focuses
on productivity as the best indicator of national competitiveness (Moon et al., 1998; Berger, 2008; Wilson,
Lindbergh, and Graff, 2014; Boulouta and Pitelis,
2014).
Diamond Model elements
To avoid mono-method bias, measures of the Diamond Model elements were taken from a variety of
sources. Indicators for factor conditions were taken
from the Human Capital Report. We used human capital as an appropriate proxy for Porter’s factor conditions because of his emphasis on advanced factors.
Advanced factors are knowledge based as opposed
to more traditional factors such as land, physical capital, quantity of employees, and financial capital. The
Human Capital Report contains both perceptual and
direct measures of the state of education, health, and
3 For instance, Porter explains that even if demand conditions are
favorable in an economy (i.e., sophisticated consumers), the lack
of vigorous competition would not drive organizations to upgrade
their productive capabilities in serving this demand. He also emphasized that his theory attempts to ‘integrate the many elements
which influence how companies behave and economic progress.
The result is a holistic approach…(and) greater simplification
would obscure some of the most important parts of the problem,
such as the interplay among the individual influences’ (Porter,
1990: xxv).
88 S. Fainshmidt, A. Smith, and W. Q. Judge
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DOI: 10.1002/gsj.1116
worker skills and capabilities within a country. These
three elements include both survey and archival data
on the access, quality, and attainment of education;
the longevity, healthiness, and emotional well-being
inside each country; and the experience, talent, knowledge, and training of the country’s workforce.
We assessed demand conditions using one key item
from the EOS. The item, labeled ‘buyer sophistication,’
asked executives, ‘In your country, how do buyers
make purchasing decisions? (1=based solely on the
lowest price; 7= based on a sophisticated analysis of
performance attributes).’ This item was particularly appropriate because it taps directly into the sophistication
of consumers in an economy. Respondent counts from
the EOS ranged from 33 (Denmark) to 420 (United
States). Responses are weighted by industry sector.
Data for related and supporting industries was
taken from the OECD’s Cluster Scoreboard. The
Cluster Scoreboard identified clusters based on two
criteria—one perceptual and the other based on archival data. First, academics with specialization in clusters were contacted and asked to provide information
about internationally or nationally relevant business
agglomerations in their own countries. These identified clusters were then subject to a second screening,
which required a minimum number of 20 organizations for clusters with a narrow industry definition
and increasingly higher firm requirements for broader
clusters. This methodology yielded 80 advanced clusters around the world.
Context for rivalry was assessed using data from
two equally weighted sources: The World Bank’s
Table 1. Construct measurement and data sources
Construct Measurement Source
Factor conditions Three pillars from the Human Capital Report: education (access,
quality, and attainment); health (survival, healthiness,
emotional well-being, and health care quality); and workforce
and employment (experience, talent, knowledge, and training).
The World Economic
Forum’s Human Capital
Report for the year 2013b
Demand conditions Seven-point Likert scale item labeled ‘buyer sophistication’
asking: In your country, how do buyers make purchasing
decisions? (1 = based solely on the lowest price; 7 = based on a
sophisticated analysis of performance attributes).
The World Economic
Forum’s Executive
Opinion Survey for the
year 2012, included in the
2013 Global
Competitiveness Report
Related and supporting
industries
A measure of the number of clusters of related and supporting
industries in both service and manufacturing sectors
worldwide. This measure assesses non-OECD countries as well.
Cluster Scoreboard
(OECD, 2012-2013)
Context for rivalry Multiple items from two surveys weighed equally. The Doing
Business Survey measures the ability to compete by assessing
the ease of starting and running a business. The Executive
Opinion Survey assesses the intensity of local competition and
the extent of market dominance among organizations (sevenpoint Likert scale).
Ease of Doing Business
Index (2012) and
Executive Opinion Survey
(2012)
MNE penetration Inward FDI stock as a percentage of GDP. United Nations’ Conference
on Trade and
Development (2012)
Governance quality An average of the indicators ‘political stability and absence of
violence,’ ‘rule of law,’ and ‘control of corruption.’ ‘Political
stability’ measures the likelihood of political instability and/or
politically motivated violence. ‘Rule of law’ measures the
extent to which economic actors have confidence in and abide
by the rules of society. ‘Control of corruption’ measures the
degree that public power is used for private gain as well as the
degree to which elites and private interests control the
government.
The World Bank’s World
Governance Indicators
(2012)
National competitiveness Labor productivity calculated as national GDP (PPP) divided by
total workforce.
The World Bank (2013)
National Competitiveness and Porter’s Diamond Model 89
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Doing Business Survey as well as two items from the
EOS. First, the Doing Business Survey measures the
ease of starting and running a business. Items include
information on starting a business, tax levels, getting
credit, trading across borders, and resolving insolvency, among other indicators. Such a framework
measures the costs of starting and owning a business
within a country; if these costs are low, competition
is able to flourish. Second, the Executive Opinion Survey assesses the intensity of local competition and the
extent of market dominance versus atomistic competition among organizations (seven-point Likert scale).
The two questions utilized were: (1) how would you
characterize corporate activity in your country—dominated by a few business groups or spread among
many firms?; and (2) how would you assess the intensity of competition in the local markets in your country—limited or intense?
Governance quality
To measure this construct, we averaged three of The
World Bank’s World Governance Indicators for the
year 2012 (e.g., Oh and Oetzel, 2011; Charron,
Lapuente, and Dijkstra, 2012; Li, Li, and Shapiro,
2012), which correspond to the three roles of government we discussed earlier. We used data measuring
‘political stability,’ ‘rule of law,’ and ‘control of corruption.’ The ‘political stability’ index surveys country experts on the likelihood of political turmoil
and/or politically motivated violence within a country.
The ‘rule of law’ index surveys country experts on the
extent to which economic actors have confidence in
and abide by the rules of society. In particular, it captures ‘the quality of contract enforcement, property
rights, the police, and the courts’ (World Bank,
2013). The ‘control of corruption’ index surveys
country experts concerning the degree that public
power is used for private gain, including both petty
and grand forms of corruption, as well as the degree
to which elites and private interests control the
government.
MNE penetration
We use the stock of inward FDI as a percentage of
GDP as a proxy for MNE penetration in line with past
work (e.g., Coucke and Sleuwaegen, 2008; Pashayev,
2013). Data on the size of the stock of FDI in each
country was taken from data on the United Nation’s
Conference on Trade and Development’s Web site.
Analytical technique
Rigorously testing the Diamond Model across many
nations is a challenging endeavor, as evident in prior
literature. Analyzing such a complex system of parallel multi-contingencies with variance-based techniques would be problematic if we were to
accommodate the full range of possible interactions
(Ragin, 2008). Instead, our refined and extended Diamond Model lends itself well to a set-theoretic configurational methodology, which allows for more nuance
and complexity than traditional linear approaches
(Ragin, 2008). According to Fiss (2007: 1181), ‘rather
than implying singular causation and linear relationships, a configurational approach assumes complex
causality and nonlinear relationships.’
Accordingly, we utilized fsQCA 2.5 (Fiss, 2011;
Ragin, 2000), an appropriate methodology for probing
complex and holistic patterns of data in order to both
test and build theory (Ragin, 2000, 2006, 2008).
FsQCA builds configurations of causal conditions associated with a given outcome by using Boolean algebra (Ragin, 2000; Ragin, Drass, and Davey, 2006). As
a case-comparative approach, fsQCA can allow new
theory to emerge around previously established literature and logic. It differs from traditional linear
methods because those methods focus on each antecedent’s independent effect, whereby variables compete to explain variance (Fiss, 2011; Fiss, Cambré,
and Marx, 2013). In contrast, each observation or case
is handled in a more holistic fashion with set-theoretic
methods. In other words, analyzing cases as gestalts
allows researchers to examine each observation as a
discrete empirical bundle yet avoids the obfuscation
of cases that is affected by the search for cross-case
correlations (Ragin, 2006).4
FsQCA distinguishes between necessity and sufficiency of causal condition or configurations for an
outcome, which is important given that linkages in
the social sciences are likely to exhibit either necessity
or sufficiency, but not both (Ragin, 2000). In variancebased techniques, distinguishing between necessity
and sufficiency is problematic (Fiss, 2011). A relationship of necessity means that a certain condition(s)
must be satisfied in order for the outcome to occur.
4 Recent scholarship has demonstrated the usefulness of fsQCA for
the exploration of cross-country phenomena. For instance, past work
has shown that country-level institutional gestalts could explain inward FDI flows (Pajunen, 2008), employee compensation levels
and equality (Greckhamer, 2011) and impact the overall macroeconomic climate (Vis, Woldendorp, and Keman, 2013) and equitable
wealth creation (Judge, Fainshmidt, and Brown, 2014).
90 S. Fainshmidt, A. Smith, and W. Q. Judge
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DOI: 10.1002/gsj.1116
A sufficient condition means that if the condition is
satisfied, it is guaranteed that the outcome will occur.
A condition may be necessary but not sufficient (i.e.,
requires additional conditions to render the outcome),
sufficient but not necessary (i.e., there are alternative
paths to render the outcome), neither, or both.
Importantly, acknowledging that particular Diamond Model configurations may be sufficient, but
not necessary, for national competitiveness allows
for equifinality (Gresov and Drazin, 1997), which is
conducive for uncovering equally effective pathways
and complex patterns of complementarity and substitution in support of theory-building efforts (Crilly,
2011; Crilly, Zollo, and Hansen, 2012). Our approach
incorporates six causal conditions, resulting in 64 possible configurations (i.e., 26). Of these 64 possible
configurations, 34 are represented by the 90 countries
in our sample.
Calibration
To perform fsQCA, all raw data (i.e., variables) must
be calibrated into membership scores (i.e., conditions)
ranging from ‘0’ to ‘1,’ inclusively. A value of ‘0’ denotes full nonmembership in a particular condition,
while a value of 1 denotes full membership. For continuous, normally distributed data that does not exhibit
clear theoretical distinctions or structural clusters, a
continuous calibration technique is often appropriate
(Schneider and Wagemann, 2012). The outcome and
five of the six causal conditions exhibited this structure. Thus, we calibrated national competitiveness,
factor conditions, demand conditions, context for rivalry, governance quality, and MNE penetration
using this approach.
We used fsQCA’s automated calibration operation.
To use this operation, it was necessary to stipulate a
full membership point (i.e., calibration= 1.00), a
crossover point (i.e., calibration= 0.50), above which
a case is determined to be mostly a member, and a
complete nonmembership point (i.e., calibration= 0.00). We used the same approach as Fiss
(2011) to select these three points, which Ragin
(2006) termed the ‘direct’ approach to calibration.
Specifically, we designated the 75th percentile for
each variable as the full membership threshold, the
mean as the crossover point, and the 25th percentile
as the full nonmembership point.
Finally, the measure for related and supporting industries was not normally distributed. We coded related and supporting industries as follows: if a
country does not have a single cluster, it would be a
nonmember of the related and supporting industry
condition; these countries were coded as ‘0.’ Countries with one cluster were coded as ‘0.5.’5 Countries
with two or more clusters were coded as ‘1.’ Calibration data and descriptive statistics for the 90 economies are displayed in Table 2.
Consistency and frequency thresholds
To assess whether any of the combinations generated
by the fsQCA truth table algorithm are subsets of the
outcome, frequency and consistency thresholds must
be specified. We first reduced the truth table by specifying a minimum frequency of one rather than choosing a higher number of countries to constitute the
minimum number of countries per configuration. A
frequency of one enabled us to capture all countries
and not eliminate any cases, which also puts the Diamond Model to a strict test to ascertain whether there
are alternative paths, even if only displayed by one
country, to achieving high national competitiveness.
In fact, policy makers and academics often recognize
that a single exemplary case may be an example to
be emulated.
FsQCA calculates consistency scores for measuring the degree to which membership in a given configuration is a subset of membership in the outcome. A
coverage score is also used to describe the relevance
of a condition or a set of conditions to a particular outcome, such that close-to-zero coverage indicates triviality (see Ragin, 2008). User-provided consistency
thresholds are used to classify the remaining configurations as either exhibiting the outcome or not. We
used 0.8 for the consistency threshold, which is above
the minimum recommendation of 0.75 (Ragin et al.,
2006; Ragin, 2008) and consistent with past work (e.
g., Bell, Filatotchev, and Aguilera, 2013). We also
used 0.70 as the threshold for PRI consistency
(Misangyi and Acharya, 2014).
RESULTS
Necessity analyses
We first conducted a necessity test to examine whether
causal conditions are necessary for high national
5 We coded this middle group of countries as 0.501 because coding a country as exactly 0.50, causes the fsQCA software to ignore
the data point (see Crilly et al., 2012).
National Competitiveness and Porter’s Diamond Model 91
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DOI: 10.1002/gsj.1116
Table 2. Calibration scores and descriptive statistics for 90 nations
Country National
competitiveness
Factor
conditions
Demand
conditions
Context
for rivalry
Related and
supporting
industries
MNE
penetration
Governance
quality
Albania 0.09 0.33 0.37 0.30 0.00 0.39 0.08
Algeria 0.10 0.00 0.00 0.00 0.00 0.10 0.02
Argentina 0.20 0.35 0.29 0.01 0.00 0.28 0.12
Australia 0.99 0.99 0.95 1.00 0.50 0.53 1.00
Austria 0.99 1.00 0.96 0.99 1.00 0.43 1.00
Azerbaijan 0.06 0.10 0.93 0.17 0.00 0.20 0.25
Bahrain 0.61 0.56 0.97 0.90 0.00 0.74 0.25
Bangladesh 0.01 0.00 0.03 0.01 0.00 0.00 0.01
Belgium 0.99 1.00 0.98 0.95 1.00 1.00 0.99
Bolivia 0.02 0.01 0.01 0.00 0.00 0.45 0.03
Brazil 0.05 0.19 0.67 0.45 1.00 0.36 0.34
Bulgaria 0.11 0.39 0.05 0.47 0.00 1.00 0.38
Cambodia 0.01 0.01 0.83 0.11 0.00 0.69 0.03
Cameroon 0.01 0.00 0.00 0.13 0.00 0.25 0.01
Canada 0.98 1.00 1.00 0.99 1.00 0.40 1.00
Chile 0.36 0.76 0.95 0.86 0.00 1.00 0.98
China 0.05 0.68 1.00 0.57 1.00 0.07 0.08
Colombia 0.30 0.11 0.6 0.49 0.00 0.39 0.03
Costa Rica 0.18 0.9 0.72 0.52 0.00 0.53 0.85
Cote de Ivorie 0.01 0.00 0.00 0.01 0.00 0.33 0.01
Croatia 0.66 0.65 0.01 0.32 0.00 0.52 0.62
Czech Republic 0.74 0.84 0.52 0.92 0.00 0.71 0.93
Denmark 0.97 1.00 1.00 1.00 1.00 0.48 1.00
Dominican Republic 0.18 0.04 0.00 0.14 0.00 0.48 0.10
Ecuador 0.08 0.24 0.05 0.02 0.00 0.22 0.02
Egypt 0.05 0.00 0.00 0.02 0.00 0.36 0.02
Estonia 0.45 0.95 0.06 0.94 0.00 0.98 0.96
Ethiopia 0.01 0.00 0.01 0.01 0.00 0.17 0.01
Finland 0.98 1.00 1.00 0.99 1.00 0.40 1.00
France 0.99 0.99 0.84 0.97 1.00 0.40 0.98
Germany 0.97 1.00 0.97 1.00 1.00 0.24 0.99
Ghana 0.01 0.02 0.05 0.53 0.00 0.53 0.37
Greece 0.91 0.47 0.35 0.41 0.00 0.00 0.36
Guatemala 0.06 0.02 0.39 0.37 0.00 0.22 0.03
Hungary 0.52 0.44 0.01 0.66 0.00 0.80 0.82
India 0.02 0.05 0.73 0.48 0.50 0.09 0.05
Indonesia 0.02 0.37 0.59 0.19 0.00 0.30 0.05
Iran 0.46 0.01 0.42 0.08 0.00 0.01 0.01
Ireland 1.00 0.99 0.96 0.96 0.00 1.00 0.99
Israel 0.91 0.97 0.91 0.75 0.50 0.35 0.60
Italy 0.97 0.75 0.93 0.82 1.00 0.18 0.65
Jamaica 0.10 0.14 0.17 0.45 0.00 0.89 0.20
Japan 0.95 1.00 1.00 0.98 1.00 0.00 0.99
Jordan 0.11 0.24 0.10 0.32 0.00 0.90 0.36
Kazakhstan 0.12 0.59 0.81 0.20 0.00 0.91 0.05
Kenya 0.01 0.05 0.14 0.27 0.00 0.00 0.01
Korea (South) 0.89 0.98 0.98 0.81 1.00 0.13 0.85
Kuwait 0.99 0.11 0.29 0.19 0.00 0.08 0.51
Latvia 0.35 0.76 0.19 0.60 0.00 0.56 0.78
Lithuania 0.62 0.84 0.01 0.51 0.00 0.00 0.88
92 S. Fainshmidt, A. Smith, and W. Q. Judge
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DOI: 10.1002/gsj.1116
competitiveness. This is in keeping with Schneider
and Wagemann (2012), who recommend removing
necessary and redundant conditions in order to simplify analyses. The necessity statistics measure the
extent to which national competiveness is a subset of
each causal condition (Ragin, 2006). For each causal
condition, a consistency score of 1.00 indicates necessity at all instances in the sample. A causal condition is
Table 2. (Continued)
Country National
competitiveness
Factor
conditions
Demand
conditions
Context
for rivalry
Related and
supporting
industries
MNE
penetration
Governance
quality
Malaysia 0.26 0.96 0.98 0.99 0.00 0.56 0.64
Mexico 0.28 0.22 0.27 0.47 0.50 0.35 0.06
Morocco 0.03 0.03 0.12 0.47 0.00 0.44 0.13
Netherlands 0.98 1.00 1.00 0.99 1.00 0.80 1.00
New Zealand 0.88 1.00 0.96 0.99 0.00 0.59 1.00
Nigeria 0.01 0.00 0.18 0.29 0.00 0.35 0.00
Norway 1.00 1.00 0.97 0.99 1.00 0.48 1.00
Oman 0.96 0.21 0.71 0.62 0.00 0.33 0.73
Pakistan 0.02 0.00 0.37 0.11 0.00 0.04 0.00
Peru 0.06 0.11 0.39 0.63 0.00 0.42 0.05
Philippines 0.02 0.18 0.47 0.10 0.00 0.12 0.03
Poland 0.66 0.58 0.34 0.91 0.00 0.50 0.93
Portugal 0.66 0.90 0.47 0.59 1.00 0.52 0.96
Qatar 1.00 0.99 0.98 0.91 0.00 0.24 0.98
Romania 0.11 0.21 0.08 0.45 0.00 0.48 0.33
Russia 0.27 0.48 0.49 0.34 0.00 0.34 0.02
Saudi Arabia 0.99 0.30 1.00 0.92 0.00 0.45 0.30
Senegal 0.01 0.01 0.00 0.12 0.00 0.18 0.19
Serbia 0.19 0.06 0.00 0.09 0.00 0.76 0.15
Singapore 1.00 1.00 1.00 1.00 0.00 1.00 1.00
Slovenia 0.84 0.95 0.02 0.70 0.00 0.32 0.96
South Africa 0.17 0.01 0.93 0.93 0.00 0.46 0.35
Spain 0.98 0.90 0.72 0.95 0.50 0.46 0.90
Sri Lanka 0.03 0.55 0.98 0.49 0.00 0.06 0.13
Sweden 0.99 1.00 1.00 1.00 1.00 0.80 1.00
Switzerland 0.97 1.00 1.00 0.99 0.00 1.00 1.00
Tanzania 0.01 0.00 0.01 0.03 0.00 0.48 0.09
Thailand 0.05 0.64 0.76 0.61 0.00 0.58 0.06
Trinidad and Tobago 0.88 0.05 0.42 0.23 0.00 1.00 0.28
Tunisia 0.10 0.14 0.61 0.81 0.00 0.75 0.13
Turkey 0.42 0.13 0.02 0.87 0.00 0.25 0.14
Uganda 0.01 0.00 0.00 0.05 0.00 0.03 0.03
Ukraine 0.04 0.47 0.06 0.06 0.00 0.75 0.05
United Arab Emirates 1.00 0.89 1.00 0.98 0.00 0.31 0.95
United Kingdom 0.98 1.00 1.00 1.00 1.00 0.66 0.99
United States 1.00 1.00 1.00 1.00 1.00 0.27 0.99
Uruguay 0.16 0.42 0.40 0.22 0.00 0.44 0.95
Venezuela 0.14 0.03 0.05 0.00 0.00 0.16 0.00
Vietnam 0.01 0.11 0.34 0.31 0.00 0.70 0.17
Yemen 0.02 0.00 0.00 0.00 0.00 0.02 0.00
Sample mean 0.44 0.47 0.51 0.53 0.20 0.44 0.46
Sample median 0.23 0.41 0.47 0.50 0.00 0.41 0.34
Sample std. dev. 0.41 0.41 0.40 0.37 0.35 0.29 0.41
National Competitiveness and Porter’s Diamond Model 93
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DOI: 10.1002/gsj.1116
considered ‘almost always necessary’ if its consistency exceeds 0.90 (Schneider, Schulze-Bentrop, and
Paunescu, 2010). While some consistency scores approach the 0.90 threshold, none indicate that a condition is ‘almost always necessary.’ This suggests that
national competiveness can be achieved without the
presence or absence of any single condition. Thus,
we proceeded without removing any of the conditions
from the model (Schneider and Wagemann, 2012).
Sufficiency analyses
The sufficiency analyses results are presented in
Table 3. As in Fiss (2011), we refer to the presence
of the outcome condition (i.e., national competitiveness) above the crossover point as ‘high national competitiveness.’ We display the intermediate solution,
which is appropriate when only ‘easy’ counterfactuals
(i.e., configurations for which there are no cases, but
that are consistent with prevailing theory) are utilized.
By specifying expected associations between conditions and the outcome a priori, the solution may be
simplified by using the assumption that adding a redundant causal condition to a configuration already
linked to high national competitiveness would still
produce that outcome. In our case, we specified the
presence of the four Diamond elements as well as governance quality as ‘should be’ associated with high
national competitiveness. Due to conflicting views in
prior literature, however, we did not specify a priori,
any theoretical direction for MNE penetration. Additionally, we compared the intermediate solution with
the parsimonious solution in order to distinguish core
from peripheral conditions.6
The four configurations identified in Table 3 are
each sufficient for high national competitiveness. Specifically, this solution covers 76 percent of fuzzy
membership in high national competitiveness, with
consistency of 0.93. The overall solution consistency
indicates that the four identified configurations are
very strongly associated with high national competitiveness, and the coverage score indicates that the solution accounts for a majority subset of it. Notably,
solution coverage improved dramatically over a
model with the Diamond Model alone without governance quality and MNE penetration. Without the two
6 The parsimonious solution is a further simplified solution based
on ‘difficult counterfactuals.’ Whereas ‘easy counterfactuals’ reduce the solution only by including remainders (i.e., configurations for which there are no cases or that were dropped during
the frequency cutoff specification) consistent with theory, ‘difficult counterfactuals’ make no such distinction and reduce the data
regardless of researchers’ assumptions, producing the most concise and simplified way to express the solution. For core conditions, those that are also in the parsimonious solution, there is
an empirically stronger association with the outcome that is not reduced, even in the face of additional plausible configurations.
However, for peripheral conditions, the evidence for a causal relationship with the outcome may be weaker, depending on the plausibility of the difficult counterfactuals. See Grandori and Furnari
(2012) for an excellent and detailed discussion of counterfactual
analysis and the differences between solutions.
Table 3. Sufficiency analysis results
High national competitiveness
Causal condition Configuration 1 Configuration 2 Configuration 3 Configuration 4
Factor conditions ● ● ●
Demand conditions ● ●
Related and supporting
industries
●

Note: Following past research (e.g., Judge et al., 2014), we indicate the presence of a condition with a filled circle (‘●’) and the absence of a
condition with a slashed circle (‘Ø’). A blank space denotes that a condition does not matter (i.e., can be absent or present) in that given
configuration. As in Crilly (2011), we distinguish between core and peripheral conditions using the size of the circles (larger circles are
core conditions). N = 90.
94 S. Fainshmidt, A. Smith, and W. Q. Judge
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DOI: 10.1002/gsj.1116
additional causal conditions, coverage was only 0.43
with a consistency score of 0.95. Thus, the two additional causal conditions greatly improved the empirical relevance or explanatory power of the model. In
addition, the fact that there are multiple causal conditions in each of the four identified configurations indicates that none of the elements are sufficient by
themselves to bring about high national
competiveness. This provides further support that a
set-theoretic methodology is appropriate.
Configuration 1 contains three of the four elements
of the Diamond—only related and supporting industries is missing. In addition to these three elements,
governance quality serves as a core causal condition.
Configurations 2 and 3 indicate that countries can
achieve national competitiveness without sophisticated local demand. Configuration 2 contains the presence of two elements of the Diamond Model—factor
conditions and context for rivalry. The presence of
governance quality is again a core condition here. In
this configuration, the absence of MNE penetration
actually contributes to high national competitiveness.
Configuration 3 contains three of the four components
of the Diamond Model. In these cases, related and
supporting industries replaces demand conditions
from Configuration 1. Configuration 3 also contains
the presence of governance quality. Finally, Configuration 4 contains two of the elements of the Diamond
Model—demand conditions and context for rivalry. In
addition it contains the absence of MNE penetration
and the presence of governance quality.
Context for rivalry and governance quality are
present in each of the four identified configurations,
indicating their centrality in achieving high national
competitiveness. Interestingly, only governance quality is a core condition in all four configurations, further
highlighting its primacy for achieving high national
competitiveness. However, it is important to note that
governance quality by itself is not sufficient for high
national competitiveness. Instead, it must be
complemented by elements within the Diamond
Model.
The raw coverage values presented in Table 3 show
the fraction of national competitiveness that is
encompassed by each respective configuration, and
unique coverage indicates the portion of national
competiveness that is covered only by that specific
configuration. Coverage statistics here are quite high
in comparison to other studies (e.g., Crilly, 2011; Fiss,
2011; Garcia-Castro et al., 2013), indicating that the
identified configurations of causal conditions are in
fact very relevant to high national competiveness.
Robustness tests
Fuzzy-set analysis requires researchers to make several important judgment calls (e.g., frequency cutoff,
consistency threshold) that may have an impact on results (Fiss et al., 2013; Schneider and Wagemann,
2012). Thus, to substantiate the stability of our results,
we checked whether different specifications will ‘lead
to solution terms that are not in a subset relation with
one another…or to differences in the parameters of
fit that are large enough to warrant a meaningfully different substantive interpretation’ (Schneider and
Wagemann, 2012: 286). Overall, we find largely consistent results in the robustness tests using these different standards. For the sake of brevity, we report the
results of those tests in the Appendix.
DISCUSSION AND CONCLUSIONS
Overview
This study had both theoretical and empirical objectives. First, we sought to advance theory on national
competitiveness by examining how elements of the
traditional Diamond Model, coupled with governance
quality and MNE penetration, may collectively influence a country’s level of aggregate productivity. Second, we empirically examined Porter’s Diamond
Model coupled with two theoretical extensions and
evaluated its systemic linkages to national competitiveness across a broad range of countries. In doing
so, we arrived at a more comprehensive national competitiveness model emphasizing the centrality of governance quality and the way the elements of the model
combine in complementary and substituting manner to
bring about high national competitiveness.
Using fsQCA, we analyzed data from 90 developed and developing nations. The sufficiency analysis
identified four distinct configurations associated with
national competitiveness. This extends prior literature
that uses a variance approach. Grein and Craig (1996),
for instance, were able to identify only factor conditions as a significant predictor of national competitiveness when controlling for other elements. By using
fsQCA, we were able to identify four distinct configurations of causal conditions associated with national
competitiveness. In each of these configurations, multiple aspects of the Diamond Model appear to be
salient.
Importantly, empirical results indicate that a strong
Diamond in all four elements is not necessary for high
National Competitiveness and Porter’s Diamond Model 95
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DOI: 10.1002/gsj.1116
national competitiveness. However, the configurations we identified do lend much credence to Porter’s
original framework as a means of identifying why
some countries in general are more competitive than
others. At the same time, we also find support for
some of the arguments proposed by Porter’s critics.
Next, we discuss the implications of these findings
and use illustrative cases from our comparative
analysis.
Extending the Diamond Model and national
competitiveness theory
Consistent with Metcalfe’s (1991) initial critique and
subsequent findings (e.g., Wickham, 2005), a central
finding of our study is that governance quality deserves a more direct and central role within the Diamond Model. Porter (1990: 174, emphasis added)
argued that a strong Diamond produces ‘conditions
in a nation that signal, channel, or steer its firms to perceive opportunities for improvement and innovation
and move early and in the proper direction to capitalize on them.’ A strong Diamond does indeed appear to
place organizations in a position to be more productive. However, organizations cannot easily ‘move
early and in the proper direction’ so long as the future
is unknowable and unstable. The four elements of the
Diamond Model may not secure this on their own;
something unique is required of countries’
government-based institutions because they have the
ability to reduce costs associated with instability,
transactions, and political behavior in addition to the
benefits of strengthening the Diamond.
Considering the strategic influence that governance
quality can provide adds an important refinement and
extension to Porter’s theory. While Porter was primarily concerned with a country’s ability to develop sophisticated, globally competitive firms, our data
suggests that nations in which individuals can make
stable transactions are more efficient in allowing firms
to pursue these goals. The impetus to develop capabilities to deal with the consequences of relatively weak
governance shapes production and resource allocation
decisions and is a further ‘cost’ imposed upon organizations. Firms in countries with effective governance
practices that help safeguard the future can establish
organizational boundaries according to learning and
innovation rather than by using time and resources to
deal with transaction cost considerations (Ghoshal
and Moran, 1996). Thus, our expanded conceptualization involving the role of governance quality is more
comprehensive than Porter’s original framework, and
our empirical results of the fuzzy-set analyses bore this
out. When governance quality is added to the model,
the coverage of countries with high national competitiveness increases dramatically from 0.42 to 0.77
(nearly double!).
The finding that the absence of MNE penetration
can contribute to national competiveness has some interesting implications. While it does not directly contradict the notion of the ‘Double Diamond’ (Rugman
and D’Cruz, 1993; Rugman et al., 2012; Dunning,
1993; Rugman and Verbeke, 2004), which is one of
the most enduring critiques of Porter’s work, it does
offer evidence that the presence of MNEs is not central
to national competitiveness. In fact, in two configurations, the opposite is true. Recall that several scholars
have noted the adverse impact that MNE penetration
can have on the local economy, including thwarting
competition and the development of capabilities
(Aitken and Harrison, 1999; Luiz and Stewart,
2014), and artificially reducing wages (Girma, Greenaway, and Wakelin, 2001). This has possibly been
the case in Chile and Estonia, both of which have several strong Diamond elements and high quality institutions that would normally place them among the ranks
of even more productive societies.
These findings support the idea that high MNE
penetration can, in some situations, decrease incentives to develop knowledge and productive capabilities domestically (Chittoor et al., 2015). This is
somewhat in line with Gugler and Brunner (2007),
who noted that the relationship between FDI stock
and national competitiveness depends on other elements of the Diamond Model. It is possible, however,
that MNEs perceive such environments as opportunities for investment since productivity is relatively
low in comparison to the national characteristics normally associated with high national competiveness.
That is, the infrastructure is in place and MNEs can
capitalize on this by entering and gaining access to
low price, skilled labor. It is unclear from our results
which is the case, and we leave this task for future research. What the results do show, though, is that MNE
penetration is either a ‘doesn’t matter’ or an ‘absent’
condition, indicating that, in general, the high penetration of MNEs in an economy does not seem to be a
critical ingredient of high national competitiveness.
Notably, some nations in our data have been able to
reach high levels of national competitiveness with
strong MNE penetration. As Rugman would have predicted, these tend to be smaller countries like Singapore and Switzerland. Rugman and D’Cruz (1993),
96 S. Fainshmidt, A. Smith, and W. Q. Judge
Copyright © 2016 Strategic Management Society Global Strategy Journal, 6: 81–104 (2016)
DOI: 10.1002/gsj.1116
for instance, suggested that many countries like these
are competitive because they are leveraging the Diamonds of other economies through inward MNE penetration (Barclay and Gray, 2001). However, from our
results, we note that several other small countries like
Bulgaria, Jamaica, and Jordan have had comparable
levels of MNE penetration relative to GDP and have
not achieved high levels of competitiveness. While it
might be tempting to assume that MNE penetration
has driven growth in places like Singapore, our analysis indicates that this may not have been the essential
causal condition. Singapore’s well-developed elements of the Diamond coupled with high governance
quality (Parayil, 2005) may have been the essential
drivers of gains from foreign investment (Khoury,
Cuervo-Cazurra, and Dau, 2014). Indeed, our results
suggest that countries like Singapore may have
achieved high national competitiveness even with relatively lower levels of MNE penetration which is a
‘doesn’t matter’ condition.
It seems, then, that previous mixed results may
have been due to the possibility that the degree of
MNE penetration itself does not matter per se, but that
other causal conditions are more important. What may
be occurring is that MNE penetration affects the type
of competitive advantage domestic firms forge. For instance, with low MNE penetration, high governance
quality, and a strong domestic Diamond, Japan is a
competitive economy whose firms are well known
for their strong internal coordination and supply chain
capabilities. In comparison, Ireland’s economy
achieved high national competitiveness with similar
conditions, but MNE penetration is high there. Consequently, Irish companies are known for a different set
of capabilities conducive to radical technological
change (Schneider and Paunescu, 2012; Roper,
1997), possibly due to the knowledge spillovers from
foreign MNEs. These differences are consistent with
the varieties of capitalism framework (Hall and
Soskice, 2001) and offer new opportunities for research into these nuances regarding MNE penetration
and the Diamond Model.
Further, our results reveal that countries can configure their Diamonds in equifinal ways to achieve high
national competitiveness. National competiveness
does not require a full, strong Diamond; instead it exhibits trade-off equifinality because different combinations can serve as structural alternatives (Gresov
and Drazin, 1997). Policy makers may find that the
use of a particular configuration may be constrained
in the short run, but a structural alternative may instead
be utilized. Our additional analyses (see Appendix)
also provide insights to policy makers in economies
endowed with natural resources. As our results uncover combinations of conditions conducive to higher
levels of national competitive with and without high
natural resource endowment, we contribute to a better
understanding of ways to leverage the Dutch Disease
or natural resource curse troubling many economies.
Relatedly, path dependence may require a particular configurational profile as a preferred avenue for
pursuing increased national competitiveness. For instance, many of the elements in Configuration 1 and
Configuration 3 are similar. However, they also exhibited a key difference. A high level of national competitiveness was obtained for those countries with
sophisticated demand conditions in Configuration 1.
In contrast, a similar outcome was obtained for those
countries pursuing the Configuration 3 approach, relying more heavily on strong related and supporting industries. Possibly, national competitiveness in
Configuration 3 may be more rooted in interfirm capabilities or spillovers that enhance competitiveness of
all links in the value chain, while the one in Configuration 1 is more strongly pulled from the demand side,
which encourages organizations to constantly upgrade
their capabilities in response to the wishes of sophisticated consumers.
Indeed, results are clear that, aside from context for
rivalry, no given Diamond Model element is present
(i.e., strong) at all times. For instance Slovenia, with
strong membership in Configuration 2, has achieved
a good degree of national competitiveness via the interaction of factor conditions, context for rivalry, and
relatively strong public governance, despite unsophisticated local demand and relatively weak related and
supporting industries. If a country has strong factor
conditions and high governance quality but is not
competitive (e.g., Latvia), policy makers can assess
the current Diamond configuration and pursue the
path that best fits its institutional and competitive
matrices.
The notion that the causal conditions may either
function as complements or substitutes is a finding related to the equifinality principle. For instance, factor
conditions is present in Configurations 1, 2 and 3.
However, in Configuration 4, factor conditions is absent, while demand conditions is present and a core
condition. This implies that factor conditions and demand conditions may be functional substitutes in
some situations, but their copresence is not detrimental to national competitiveness, as Configuration 1
shows. By way of example, Lithuania (Configuration
2) and Portugal (Configuration 3) have both achieved
National Competitiveness and Porter’s Diamond Model 97
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DOI: 10.1002/gsj.1116
moderately high levels of national competitiveness in
the presence of weak demand conditions. In such
countries, we see other elements of the Diamond
Model, such as factor conditions and related and
supporting industries, likely serve as substitutes. Instead of local demand acting as a pull factor, it is possible that organizations in these nations are more
productive due to the strength of their production
systems.
As critics (Rugman and D’Cruz, 1993) have noted,
the markets of geographically proximal countries in
places like Europe may offer sophisticated demand
conditions such that domestic demand conditions become less salient (Cartwright, 1993; O’Connell,
Clancy, and van Egeraat, 1999; Rugman and D’Cruz,
1993). Here, a nation may reach relatively higher
levels of productivity in the absence of strong demand
conditions if international demand serves as a pull
factor for domestic firms. Similarly, Porter (1998: 2)
has emphasized the increasing mobility of the factors
of production, contending that ‘(f)actor endowments
continue to play a role in locational competition, but
factors per se have become less valuable as the opening of more countries to the global economy expands
their supply.’
Thus, firms from countries with weaknesses in
some elements of their domestic Diamond may increase productivity by engaging with factor and consumer markets outside of their home country
(Rugman et al., 2012; Dunning, 1993; Öz, 2002;
Rugman and Verbeke, 2004). For instance, the regional integration in North America, combined with
the highly sophisticated demand conditions in the U.
S., arguably allowed Canadian organizations to improve productivity in response to external demand
(Rugman and D’Cruz, 1993). Relatedly, as MNEs often serve as vehicles to access foreign Diamonds, our
findings highlight an important need for future research investigating the complementary or substitutable role of outward FDI in conjunction with
Diamond elements, inward FDI, and governance
quality to further advance theory on national competitiveness and the Diamond Model.
Limitations
While our study makes several notable contributions,
findings should be considered tentative for several reasons. First, the issue of endogeneity is always a concern with comparative country-level research. For
instance, one could argue that wealthy and productive
economies may have an easier time developing a
strong Diamond, raising concerns about reverse causality. The notion that national competitiveness may
lead to the development of strong Diamond elements
via a wealth effect is possible, albeit comparative institutional research does show that productivity and
wealth are best cast as outcomes (Acemoglu et al.,
2001). Relatedly, our study is cross-sectional, so we
must not draw any strong conclusions about temporal
stability. Further longitudinal research into the Diamond Model and its link to national competitiveness
is warranted.
Furthermore, we relied on a close reading of the relevant literature to determine the proper indicators of
the Diamond Model’s elements. However, although
it is true that there are no well-established and fully
validated measures of the Diamond Model elements,
we believe that our approach represents the focal constructs well. In addition, if one looks closely enough,
variance between industries within a nation would undoubtedly be observed. Our theoretical arguments and
methodology are focused on aggregate productivity
and Diamond Model elements for the nation, which
is meaningful because nations do exhibit coherent
business systems that vary not only in terms of Diamond Model elements, governance, and MNE penetration, but also in levels of national productivity
(Judge et al., 2014). Nevertheless, future research that
examines within-nation configurations of the model
advanced and tested here is warranted.
Finally, given that our data is from a rather globalized 2012 world, we are mixing domestic factor conditions with ‘imported’ ones. For instance, an inflow of
skilled human capital shifts the domestic mix of factor
conditions, thus modifying the country’s Diamond.
This is not necessarily a limitation, as these are the current Diamond conditions inside the countries we examine, though this characteristic of the data as a
reflection of twenty-first-century reality is certainly
noteworthy. Similarly, MNEs may improve home
country productivity as well, and different types of inward FDI stock (i.e., across industries) may have differential effects on productivity; a look into these
issues based on our discussion is another fruitful future research avenue.
CONCLUSION
Despite these limitations, we believe this study contributes to the literature by providing a global analysis
98 S. Fainshmidt, A. Smith, and W. Q. Judge
Copyright © 2016 Strategic Management Society Global Strategy Journal, 6: 81–104 (2016)
DOI: 10.1002/gsj.1116
of and extension to Porter’s Diamond, as well as by
examining the role of governance quality and MNE
penetration as elements of the national competitiveness puzzle. Understanding what makes nations competitive is fundamental to understanding what makes
organizations competitive in the global arena. It seems
that Porter’s original arguments may require some nuance. Yet, as Confucius once said, ‘better a diamond
with a flaw than a pebble without.’
ACKNOWLEDGEMENTS
An earlier version of this article was presented at the
2014 Strategic Management Society pre-conference
workshop on Corporate Strategy in a Global Economy
in Madrid, Spain. We are thankful to the participants
of this SMS pre-conference for their helpful feedback.
We also thank three anonymous Global Strategy Journal reviewers and Coeditor Torben Pedersen for providing very valuable feedback that shaped the article.
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APPENDIX
ADDITIONAL ANALYSES
Consistency and frequency thresholds sensitivity
analysis
To assess the robustness of our solution, we reran
the analysis altering the consistency threshold and
frequency cutoff. We repeated the sufficiency analysis with a consistency threshold of 0.75 and 0.85 instead of 0.80 and with a frequency cutoff of 2
instead of 1. We chose 0.75 as the lowest bound
for acceptable subset relations (Ragin, 2006) and a
frequency cutoff of 2 to ascertain whether the configurations we identified were single occurrences.
Results of these tests, while not identical, were in
subset relation to the original solution. That is,
when we dropped the consistency threshold, the
0.80 solution was a subset of the 0.75 solution.
Likewise, when we raised the consistency threshold
to 0.85, that solution was a subset of the solution
using 0.80 as the frequency cutoff. Similarly, the
solution for a cutoff of 2 was a subset of the original solution with a frequency cutoff of 1. Such
subset relations indicate that results are largely
stable.
Natural resources sensitivity analysis
We conducted a supplemental analysis examining the
potential influence of natural resource endowment on
national competitiveness.7 We included natural resource endowment in the model, measured as total natural resources rents (percent of GDP) in each country.
This variable was obtained from The World Bank’s
World Development Indicators. While expanding the
number of conditions to seven did alter the coverage
and consistency scores minimally, the four identified
configurations were identical with respect to the original six causal condition model. Interestingly, the presence of natural resource endowment is always a
7 We thank an anonymous reviewer for this insightful suggestion.
National Competitiveness and Porter’s Diamond Model 103
Copyright © 2016 Strategic Management Society Global Strategy Journal, 6: 81–104 (2016)
DOI: 10.1002/gsj.1116
peripheral condition and never a core condition. It is
only present in Configuration 4a, while the absence
of natural resource endowment is associated with
two of the four configurations. Notably, Configuration
4a was the smallest configuration and contained only
three countries. Results of the analysis containing natural resources are in Table A1.
Economic development sensitivity analysis
On a global scale, the meaning of national competitiveness is highly associated with the degree to which
an economy is considered developed. However, Porter
and his team of researchers were very concerned with
national conditions that separated highly developed
nations from one another in their original study. Indeed, the very genesis of the study arose out of concerns that Japan was overtaking the United States as
a manufacturing and technology pacesetter during
the 1980s.
To evaluate differences among a relatively homogeneous set of developed countries, we reduced the
set of examined countries to 14 of the 15 European
Union member countries that had joined the EU by
1996.8 While all of the countries in this sample are
globally competitive, we wanted to see whether the
model could explain differences even among advanced economies. The EU subset allows us to compare geographically similar and historically linked
economies that have been exposed to industrialization
for hundreds of years. Furthermore, any ‘neighborhood’ effects in the data (e.g., Costa Rican executives
comparing their country to other Central American
countries) are mitigated by selecting countries from
the same neighborhood.
We calibrated EU member countries relative to
each other, using the same technique as with the original sample. Unsurprisingly, there were fewer (three
vs. four) configurations associated with high national
competitiveness given the reduced sample. However,
results still corroborate our main results. Notably, all
of the causal conditions in the EU subsample analysis
exhibit the same associations with national competitiveness. Additionally, the same pattern of MNE penetration’s absence in association with high national
competitiveness is observed.
Temporal stability sensitivity analysis
To address the request of an anonymous reviewer, we
examined whether results are consistent for a different
year of data. Data for 2012 (the year of our study) and
2010 were highly correlated (at least 0.9). Hence,
recalibrating the data (aside from our cluster data for
related and supporting industries of which we have
only one round of observations) did not qualitatively
change the results. In addition, we reran the analysis
without specifying the anticipated causal relation between some of the causal conditions and the outcome.
This analysis still yields four configurations with similar coverage and consistency, and governance quality
is a core condition present in all configurations.
8 These include: Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain,
Sweden, and the United Kingdom.
Table 4. Adding natural resource endowment as a condition to the main analysis
High national competitiveness
Causal condition C1a. C2a. C3a. C4a.

A1.
104 S. Fainshmidt, A. Smith, and W. Q. Judge
Copyright © 2016 Strategic Management Society Global Strategy Journal, 6: 81–104 (2016)
DOI: 10.1002/gsj.1116

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