The Dynamic 'Diamond': A Technological Innovation Perspective

A firm's local environment can constitute a source of national or regional cornpetitive advantage. An important question, therefore, is how these environments come about and how they can be lost. In this paper, we argue that a local environment is a function of the process of technological evolution. It is a function of how certain initial and prevailing conditions, the type of innovation, and chance events, influence the processes of uncertainty resolution, capabilities building, and survivor selection that are characteristic of technological evolution. We also argue that a region can lose its advantage when a dominant design emerges or when a technological discontinuity obsoletes the localized technological capabilities of not only manufacturers, but also of their suppliers, customers and related industries. The environment is dynamic as firms and nations, in response to their performances, also influence it by changing their strategies or policies.