Scand. J. Mgmt. Vol. 14, No. 4, pp. 459—478, 1998  1998 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0956—5221/98/$19.00#0.00 PII: S0956-5221(97)00047-X DO THE DIAMONDS OF FOREIGN COUNTRIES SHAPE THE COMPETITIVENESS OF FIRMS? A CASE STUDY OF THE SWEDISH ENGINEERING CONSULTING INDUSTRY LILACH NACHUM Cambridge ºniversity, ESRC Centre for Business Research (First received March 1996; accepted in revised form August 1997) Abstract — This research sought to explore the effect of foreign countries on firms’ competitiveness, using Porter’s Diamond as the framework for the empirical test. The empirical evidence was based on data collected from a sample of Swedish engineering consulting firms. The findings demonstrate that the Swedish Diamond has stronger impact on the competitiveness of Swedish engineering consulting firms than do the Diamonds of the host countries in which these firms are active. The effect of host countries’ Diamond tend to increase as firms mature in their international activity and was found to have weak relation to the psychic distance between Sweden and the host countries.  1998 Elsevier Science Ltd. All rights reserved INTRODUCTION In seeking to explain patterns of international competition, some scholars, such as Kogut (1988), Porter (1990), and Dunning (1990, 1993), emphasise the central role of home- country characteristics, maintaining that these are crucial in determining the competitive position of national firms in international markets. Underlying these arguments is the observation that the ‘‘global champions’’ in particular industries tend to be concentrated in certain geographical areas. These concentration patterns are interpreted as an indication that firms of particular nationalities enjoy favourable conditions in certain industries, which allows them to outperform their rivals of other nationalities. The accelerating growth of international business activity and the emergence of firms whose activities span many national borders, have raised doubts about the predominating role of the home country in determining the competitive position of firms. It has been argued that countries are losing their influence on the international success of their indigenous firms (see e.g. Bartlett and Ghoshal, 1991), and are becoming irrelevant in explaining patterns of international competition (Stopford and Strange, 1991). Multina- tionals have access to resources available in different countries, the argument goes, and they use these resources to develop and sustain their competitive position, regardless of their own national origin. ‘‘National identity’’ becomes a meaningless concept in such an economic world. This study is designed to test empirically the effect of foreign countries’ resources and conditions on the performance of firms. It seeks to explore the relative influence of home and foreign environments on the competitive position of firms, and to assess the balance 459