Absence of a basic factor that would be advantageous to have in abundance if there were no dynamic effects. An SFD can stimulate innovation which more than compensates for the original disadvantage. SFDs are best when they send an accurate signal about circumstances that will ultimately prevail elsewhere. Since resource depletion seems to be a general trend, it pays to be the first mover in figuring out how to generate more output with fewer resources. General-use factors do not generate sustained competitive advantage.
Specialized factors are harder to imitate and therefore more valuable.
Principal examples include sources of specialized information or capital. Not clear from Porter. One hypothesis is that scale effects in the provision of such factors lead to a Catch 22 for new entrants. Specialized factors are unavailable locally because the industry is to small to justify investments in factor creation. But the local industry is small because of poor local factor conditions.