Porter's Diamond Model and Opportunity Recognition: A Cognitive Perspective

INTRODUCTION Opportunity recognition has been accepted as a crucial element in entrepreneurship. Although past research has investigated opportunity recognition focusing on various factors in the external environment and the individual to date a numerous body of opportunity recognition research revealed that there is a need to examine opportunity recognition under different theoretical approaches drawn from other fields (Short, Ketchen, Shook and Ireland, 2010; Corbett and Mcmullen, 2010). This research applies a multidisciplinary approach and examines the Porter's diamond theory of the competitive advantage of nations drawn from the strategy field and investigates how these four determinants influence entrepreneurs in recognizing opportunities. Although a numerous body of early research investigated opportunity recognition as a joint function of the external environment and individual to date limited attention is provided on the interplay between certain factors in the external environment and cognitive underpinnings in this process. Previous research pointed out the importance of cognitive characteristics in opportunity recognition research (Koen, Markman, Baron and Reilly, 2001, Julien and Vaghely, 2001, Corbett, 2005; Corbett, Mcmullen, 2010) and suggested further exploration of the cognitive underpinnings in the opportunity recognition process. In other words, extensive studies are required to understand "why" and "how" the mental mechanism is triggered in mobilizing external resources in recognition of opportunities. Further early studies have in common that although there were some entrepreneurial theory developments opportunity recognition research on entrepreneurship cognition still lacks a substantial theoretical foundation (Corbett and Mcmullen, 2010). In this study by drawing a theoretical model from the strategy field we attempt to examine "how" industry competitiveness triggers entrepreneurial mindset and influences entrepreneurs acquire and transform information and identify opportunities. This paper attempts to advance the existing research by providing a multidisciplinary approach and studies the Porter's diamond model drawn from the strategy field and investigates the cognitive underpinnings in the opportunity recognition process. We suggest that the analysis of cognitive context that exists behind the Porter's diamond model and how it relates to potential entrepreneurs will help us underpin the opportunity recognition process. We now present the literature review on opportunity recognition to provide the foundation of the conceptual connection of the study and next we investigate the relationship between the Porter's diamond model and the entrepreneurial mindset. Finally we discuss implications of the study and future research agenda. OPPORTUNITY RECOGNITION A numerous body of research increased investigated opportunity recognition and explained opportunity recognition through various approaches (Schumpeter, 1934; Kirzner, 1973; Drucker, 1985; Stevensen et al., 1998; McMullan and Long, 1990; Bhave 1994; Baron and Shane, 2008, Ozgen and Baron, 2007). A stream of research found that the external environment plays a crucial factor in creating opportunities as opportunity recognition is a process influenced by many contextual factors in the external environment (Gaglio and Taub, 1992; Singh, 1998), most importantly the availability of resources (Timmons, 1994) and assorted technologies (Zahra, 2008). Based on this reasoning, environmental contexts and technology, consumer economics, social values and governmental regulations (Stevensen and Gumpert, 1985) and changing trends in the present, i.e. social behavior patterns, market circumstances and technology (McMullan and Long, 1990), networks, demand and supply gaps, price differences, technology substitution and innovation (Thakur, 1999) , technological change (Shane, 2000); environmental dynamism (Wiklund and Shepherd, 2003); industry deregulation (Jennings and Seaman, 1990); industry characteristics and geographic dispersion (Davidsson, 1991) play a crucial role in opportunity recognition (Short, Ketchen, Shook and Ireland, 2010). …