The role of domestic rivalry illustrates how the diamond operates as a self-reinforcing system. Easing standards, however tempting, is counterproductive.
Aggressive rivalry in one industry spreads to others in the cluster, through spin-offs, through the exercise of bargaining power, and through diversification by established companies.
A process that took employees using the double-firing method needed only 90 employees using single-firing roller kilns. Domestic rivalry also promotes the formation of related and supporting industries.
Local rivals push each other to lower costs, improve quality and service, and create new products and processes. Japanese auto companies recognized this; either they would make their advantage obsolete, or a competitor would do it for them.
This is why innovators are often outsiders from a different industry or a different country. Internationalization ByItalian domestic demand had matured.
The United States is at the opposite extreme, with a large pool of risk capital but widespread trading of public companies and a strong emphasis by investors on quarterly and annual share-price appreciation.
As this example suggests, innovation and change are inextricably tied together. ByItalian companies had emerged as world-class producers of kilns and presses; the earlier situation had exactly reversed: they were exporting their red-clay equipment for foreigners to use with white clays.