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ISSN: 1649-3877

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Locational and Internal Sources of Firm Competitive Advantage: Applying Porterís Diamond Model at the Firm Level

JSME Vol 7: Issue 2, 2011

Author(s): Anna Lejpras and Alexander Eickelpasch (German Institute for Economic Research - DIW Berlin, Germany) and Andreas Stephan (JŲnkŲping International Business School, Sweden, and DIW Berlin, Germany)

Abstract:
This paper employs Porterís diamond model to examine the relationships between a firmís locational environment, its innovation capabilities, and competitive advantage assessed in terms of various performance indicators. The study implements a structural equation model estimated with the partial least squares (PLS) approach and reveals that frequent cooperation spurs innovation and performance but that, in contrast to Porterís prediction, a strong focus on local demand impedes both. Interestingly, various types of governmental support, as well as the quality of locational factors, are more important for less innovative companies than they are for more innovative ones. We also find that strong local competition is an impediment to firm innovativeness and performance, which is in conflict with Porterís model.

Keywords: Competitive advantage, Porterís diamond model, firm environment, cooperation, innovativeness, partial least squares


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