An introduction to firm specific advantages

One example could be financial services in London or New York. In Quadrant one firms rely on strong low factor costs and energy costs. Since imitation of the advantage by competitors entails high costs and high risks,the owner of the advantage is protected for a certain period of time.

The direct investor will be a monopolist or, more often, an oligopolist in product markets. Analysis of Firm Specific Advantage Foreign Direct Investment This has implications for FDI insofar as why would a foreign company inwardly invest rather than supply the products and services?

As location-advantage is bound to regions, it may lead to geographical fragmentation of value-added activities. In Quadrant three benefit from both low costs and differentiation, which may be attributable to good infrastructure and good supply of skilled employees.

The firms would of course have perfected these advantages in their own home market first so that there would be little additional cost to implementing these advantages abroad. Therefore Foreign direct investment will and has taken place place because of the product and factor market imperfections.

These advantages must be economies of scale, superior technology, or superior knowledge in marketing, management, or finance. Bartlett and Ghoshal call this a multi-domestic strategy for achieving maximum responsiveness to the local market conditions.

Quadrant two firms would have no advantages and exit the market while Q4 firms attempt to move to Q3.

Stefan Hymer argued that a direct foreign investor should possess some kind of proprietary or monopolistic advantage not available to local firms. It has been argued that Free Trade Zones can affect firms position in the quadrants over time.

Since the crucial firm-specific advantages are intangible including strategic behaviour ,they are mobile within the firm at low marginal costs. Where they are located is largely irrelevant as these skills are mobile. The consumers would prefer to similar locally made goods and thus would give the firm some control over the selling price and an advantage over indigenous firms.

Hence, integration of value-added activities Feenstrawithin the firm i. We can see the relationship between Firm and Country Specific Advantage by reference to the quadrant below.

The Single European Market may have had similar benefits for firms. International, transnational and global strategies are also viable. Patents is an obvious example of a firm specific advantage Location-advantage, or Country-Specific Advantage on the other hand is immobile and is of a public-good nature as firms have access on equal terms putting aside congestion problems.

For instance oil rich Canada has benefited from access to a larger US market.The Building of a Firm’s Specific Advantages: The Example of Sony International Journal of Managerial Studies and Research (IJMSR) Page | 50 What is firm specific advantage? Update Cancel.

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Outsourcing is an allocation of specific business processes to a specialist external service provider. Most of the times an organization cannot handle all. Specific reasons for doing business abroad include the saturation of domestic markets: discovery of lucrative opportunities in other countries: the need to obtain materials, products or technologies not available in the home nation; increases in the flow of information about conditions in foreign states; desires to expand the volume of a firm's.

Firm-specific advantage (FSA) at the firm level manifests itself in a higher productivity of comparable assets (tangible and intangible) than competitors (Caves, ). Since imitation of the advantage by competitors entails high costs and high risks,the owner of the advantage is protected for a certain period of time.

performance (based on these firm-specific advantages) and a firm’s degree of multinationality, especially where the latter is based on the level of foreign direct investment (FDI), (e.g., Hennart, ; Grubaugh, ; Morck and Yeung, ).

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An introduction to firm specific advantages
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