COMPETITIVE ADVANTAGE

Competitive Advantage

Competitive Advantage

The dynamic interplay between the competitive advantages of countries and those of companies of a particular nationality is a subject commanding increasing attention by students of the transnational corporation (TNC). Indeed, it has been suggested that a fuller understanding of the nature, content and determinants of that interaction, as it affects the globalization of production and markets, may provide the basis for one of the next advances in the theory of foreign value-added activity1 [Dunning, 1990].

Since the mid-1970s, the focus of scholars interested in explaining the existence and growth of the TNC has been directed to identifying and evaluating the relative costs and benefits of organizing the cross-border transactions of intermediate products by hierarchies or markets. Since the early 1990s, however, renewed attention2 has been given to explaining the origin and composition of the resources and capabilities3 of corporations to engage in production outside their national boundaries and to the determinants of their success in managing and organizing the international portfolio of resources they own or control.

Faced with the same economic conditions and prospects, why are some firms significant global players and not others? Why is the share of international direct investment accounted for by companies from Japan rising so rapidly? Why is Europe claiming a larger share of United Statesbased TNC activity than it used to? What explains the rapid growth of the participation of foreign-owned firms in the United States? What determines which developing countries will emerge as important international investors? Why do firms conclude strategic alliances with some firms, but avoid them with others? Why is foreign direct investment (FDI) in services rising more rapidly than that in goods? Those are just some of the questions now demanding answers by TNC researchers. What is their response? Well, one response by the scholar of the TNC, qua TNC,4 is that only part of the explanation for the growth of foreign-owned production may have to do with the increasing propensity of firms to internalize their crossborder transactions. For example, a particular competitive advantage that may help to explain the capability of a firm to supply a particular market, or set of markets, is not, in itself, a sufficient reason for that firm to create or add value to that advantage from a foreign-located facility.

Take for example, a pharmaceutical patent as a competitive advantage of a United Kingdom TNC. The origin of that ...