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where. In each of these instances, it is not the size of the home market that is important, but the extent to which it encourages firms to innovate. A large home market which meets all three conditions will be highly supportive of international competitiveness (Davies and Ellis 2000).

A related and supporting industry is when one globally successful manufacturing company can create advantages in other similar manufacturing companies. A nation industries will be better able to compete internationally if there are 'clusters' of industries in the home base economy which are linked to each other through vertical or horizontal relationships amongst suppliers, customers and distribution channels. For example Germany has a cluster in chemicals and USA in the semi-conductor industry. Dyer (1994) found in his research that the Japanese network relationships with their suppliers can enable the company to send their workers to assist customers with the work, position the factory near the customers or even invest in physical assets that are customised. This will therefore allow the Japanese's auto businesses to keep up with the inventory and transportation costs low enabling them to improve the product development. For example Toyota was able to benefit from their production networks as they created assembly factories that are geographically close with their suppliers.

The firm structure, strategy, and rivalry are the conditions governing how businesses are shaped, managed and deal with domestic rivalry in a nation. The cultural factors are important for each nation. For example each country will have different cultural traits in which the business is structured. This will create benefits for each nation and industry. In Japan the automobile industry rivalry is strong, has seven major companies: Toyota, Honda, Nissan, Mitsubishi, Suzuki, Mazda, and Subaru which all fight for the market share. These seven businesses compete intensely in the home nation, and within other nations and markets. Strong domestic competition demands all these businesses to have superior technologies, products, and management practices to compete and survive, for example there is high number of engineers in management that emphasis on improving manufacturing processes. The US has only two main businesses in automobile industry which are Ford and General Motors. The US manufactures have stated that the quality of the automobiles of Japanese cars is better than the US cars. Toyota and other automakers in Japan were able to grab 25% of the US auto market industry while the US home producers for the cars were unable to compete with the Japanese price and on the quality of the product (Buffa 1984).

In addition to the four conditions, Porter (1990) points out two important components which are the role of chance which are important as it allows nations to shift their competitive position and alter the conditions of the diamond model. Chance events have different impacts on nations for example the oil shock helped to upgrade Japanese industry (Porter 1990). The role of the government is an important influence on modern international competition. The governments can put forward the policies a nation should follow to create advantages, enabling the industries in a nation to develop a strong competitive position globally. For example the government policy for Japan and US has created success for these nations. According to Porter (1990) gove