National Competitiveness and Porter's Diamond Model: The Role of MNE Penetration and Governance Quality

Abstract

Plain language summaryThis 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 summaryWe 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.