Chapter 8: International Strategy 243
Location Advantages
Locating facilities outside their domestic market can sometimes help firms reduce costs.
This benefit of an international strategy accrues to the firm when its facilities in inter-
national locations provide easier access to lower cost labor, energy, and other natural
resources. Other location advantages include access to critical supplies and to customers.
Once positioned in an attractive location, firms must manage their facilities effectively to
gain the full benefit of a location advantage.^22
A firm’s costs, particularly those dealing with manufacturing and distribution, as well
as the nature of international customers’ needs affect the degree of benefit it can capture
through a location advantage.^23 Cultural influences may also affect location advantages
and disadvantages. International business transactions are easier for a firm to complete
when there is a strong cultural match with which the firm is involved while implementing
its international strategy.^24 Finally, physical distances influence a firms’ location choices
as well as how it manages facilities in the chosen locations.^25
8-2 International Strategies
Firms choose to use one or both basic types of international strategy: business-level
international strategy and corporate-level international strategy. At the business-level,
firms select from among the generic strategies of cost leadership, differentiation,
focused cost leadership, focused differentiation, and integrated cost leadership/
differentiation. At the corporate level, multidomestic, global, and transnational inter-
national strategies (the transnational is a combination of the multidomestic and
global strategies) are considered. To contribute to the firm’s efforts to achieve strategic
competitiveness in the form of improved performance and enhanced innovation
(see Figure 8.1), each international strategy the firm uses must be based on one or
more core competencies.^26
8-2a International Business-Level Strategy
Firms considering the use of any international strategy first develop domestic-market
strategies (at the business level and at the corporate level if the firm has diversified at the
product level). This is important because the firm may be able to use some of the capa-
bilities and core competencies it has developed in its domestic market as the foundation
for competitive success in international markets, as illustrated in the Opening Case on
Netflix. However, research results indicate that the value created by relying on capabil-
ities and core competencies developed in domestic markets as a source of success in
international markets diminishes as a firm’s geographic diversity increases.^27
As we know from our discussion of competitive dynamics in Chapter 5, firms do not
select and then use strategies in isolation of market realities. In the case of international
strategies, conditions in a firm’s domestic market affect the degree to which the firm
can build on capabilities and core competencies it established to create capabilities and
core competencies in international markets. The reason is grounded in Michael Porter’s
analysis of why some nations are more competitive than other nations and why and how
some industries within nations are more competitive relative to those industries in other
nations. Porter’s core argument is that conditions or factors in a firm’s home base—that is,
in its domestic market—either hinder or support the firm’s efforts to use an international
business-level strategy for the purpose of establishing a competitive advantage in interna-
tional markets. Porter identifies four factors as determinants of a national advantage that
some countries possess (see Figure 8.3).^28 Interactions among these four factors influence
a firm’s choice of international business-level strategy.