Factor endowments: Asia’s land is still relatively plentiful. Its labour workforce is relatively cheap and becoming increasingly educated. Capital flows and loanable funds in Asian financial centres still provide much-needed credit for growth. However, capital availability is slightly constrained by the high propensity for savings. Also, foreign portfolio investment exposes Asia to reduced liquidity. Meanwhile, infrastructure development is uneven across Asia and strained by rapid urbanisation.

Demand conditions: Asia provides a huge, sophisticated consumer base constituting 60% of the world’s population, while a rising Asian middle class offers an innovation-friendly environment. Many Asian governments continue to adopt a government spending and consumption-stimulating economic growth model to boost Asian home demand.

Related and supporting industries: The presence of local Asian suppliers clustering around their producers adds to innovation. This is true for the main manufacturing sectors such as electronics and automotives, but less so for services. This should improve as more Asian service sectors grow.

Firm strategy, structure and rivalry: Asian governments are creating favourable conditions to nurture the business environment and encourage competition. The trend is for more Asian companies to seek growth via exports, which may mean locating to more clusters overseas. Companies should develop niches where their competencies are strongest. But without institutional reform, infrastructure is insufficient to satisfy capacity building. Policy-makers must develop their country ‘diamond’ factors into a long-term, customised competitive and cluster strategy.

Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services.

E-mail: Lawrence@asiabizstrategy.com