Porter’s Diamond Factor Model (DFM) is a theoretical framework that achieved prominence in Australian economic policy development since its inception in 1990. Despite its widespread adoption, however, Australia has remained significantly below the OECD average in terms of its industrial clusters’ contributions to innovation and real wealth creation. In order to conceptualise the specific role that Porter’s DFM might play in the Australian policy development context, this paper analyses the 25-year history of the interaction between the Tasmanian state government and the Tasmanian Light Shipbuilding Industry cluster. This analysis provides an insight into the set of government roles that facilitated the development of one of Australia’s most internationally competitive industry clusters, and proposes a reconceptualisation of Porter’s DFM that will potentially increase its value as a predictive tool for regional economic development
Factor conditions: These are the economists’ traditional factors of production: land, labor, capital, and infrastructure.
Demand conditions: The characteristics of the domestic market, including the size, demand, value, and sophistication.
Related supporting industries: The presence of suppliers and supporting industries that are equally competitive and of high quality.
Firm strategy, structure, and rivalry: The regulatory and other governmental environment in which companies are created, organized, and managed, including the nature of the domestic competition.
Since the 1970s, the onrush of globalisation in Australia’s markets has presented significant economic policy challenges to the country’s federal and state governments. A major concern for Australian legislators was the question of making a nation previously protected by a ‘fortress’ of tariffs and subsidies more productive and competitive in world markets. One theoretical framework that achieved prominence in Australian economic policy development was Porter’s Industrial Cluster Theory (ICT). Porter’s ICT proposes that for a region to increase its innovative capacity and export earnings, its government must interact to develop a sustainable array of internationally competitive industry clusters . Porter’s ICT argues that a nation’s industry clusters will likely be internationally competitive if a synergistic interrelationship exists between four Diamond Factor variables (i.e. ‘Factor Conditions’, ‘Local Demand Conditions’, ‘Related and Supporting Industries’, and ‘Firm Strategy, Structure and Rivalry’) and the two influencing roles of ‘Chance Events’ and ‘Government’ for a discussion of the Diamond Factor Model (DFM) that underpins ICT.