Firm-Specific Advantage

Firm-specific advantage on the firm level manifests itself in a higher productivity of comparable assets (tangible and intangible) than competitors (Caves, 1996).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. Since the crucial firm-specific advantages are intangible (including strategic behaviour),they are mobile within the firm at low marginal costs. Hence, integration of value-added activities (Feenstra, 1998) within the firm (i.e., internal exploitation of advantages) is an optimal strategy.

Location-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). As location-advantage is bound to regions, it may lead to geographical fragmentation of value-added activities.