Literature Overview and Basic Information
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Luo, Fang-Yi, Yu, Chuo-Min, & Seetoo Dah-Hsian (2007). “The Cross-Border Transfer of Region-Specific Advantages.” Management Review, 26(2), 69–91.
I. Research Purpose and Focus
This study seeks to understand how multinational enterprises (MNEs), in the process of international expansion, manage the transferability of their competitive advantages across geographic locations, with particular attention to advantages that are location-bounded,
The central question addressed is:
Why are some home-country advantages readily transferable to foreign markets, while others are difficult to replicate outside their original locations, and what can firms do about it?
The authors not only conceptualize location-bounded advantages but also explore how these advantages can be transformed so they can be deployed effectively across borders.
II. Research Background and Motivation
Under the Resource-Based View (RBV), a firm gains competitive advantage when its resources are: Valuable, Rare, Inimitable, Non-substitutable. When growth opportunities in the home country become limited, or when foreign markets offer attractive prospects, firms often resort to foreign direct investment (FDI) to transfer these advantageous resources and capabilities abroad, thereby expanding their competitive domain.
However, the authors note two important shortcomings in the prior literature:
1. There is a lack of systematic investigation into the causes of location-bound advantages. Although some scholars have proposed the concept of location-bound advantages, they have not thoroughly explored which factors contribute to a higher degree of geographic limitation of these advantages.
2. There is a lack of explanation regarding the methods for transforming location-bound advantages. When an advantage is highly location-bound, it remains unclear how firms should undertake “transformation” efforts to convert these into “non-location-bounded advantages,” thereby facilitating smooth multinational transfer.
III. Core Concepts and Framework
Location-Bounded Advantages
Definition: A location-bounded advantage is an advantage that can be effectively applied and exploited in a specific country (typically the home country) but cannot be easily replicated or utilized with the same efficacy in other countries.
Degree, not dichotomy: The authors argue that location-boundedness is best conceptualized as a matter of degree, rather than a strict binary distinction between “location-bounded” and “non-location-bounded.” Thus: Different types of advantages exhibit different degrees of location dependency. Even the same advantage may show varying levels of location-boundedness across contexts and over time.
This perspective allows a more nuanced understanding of when and why some capabilities travel poorly across borders.
Three Antecedent Factors of Location-Boundedness
Drawing on case study evidence, the authors classify the factors that constrain cross-border transferability into three levels:
| Level | Content | Mechanism of Influence |
| A. Host- country environmental factors | Infrastructure, legal and regulatory framework, upstream/downstream partners and suppliers, and various production factors (labor, raw materials, etc.). | When the effectiveness of an advantage depends heavily on complementary host- country’s environmental conditions, its degree of location-boundedness is higher. |
| B. Intra- organizational subsystem factors | Internal elements such as organizational routines, interdepartmental coordination, employee quality, and cross-unit interaction. | When an advantage must be tightly coupled with specific subsystems (e.g., certain teams, routines, or structures) to function, its location-boundedness increases. |
| C. Characteristics of the advantage itself | Resource rigidity (e.g., immobile stores and plants), indivisibility, volatility (requiring constant dynamic adjustment), and causal ambiguity (unclear input–output relationships). | When an advantage is rigid, volatile, or causally ambiguous, it is more location- bounded. By contrast, high mobility, institutionalization, and standardization tend to reduce location-boundedness. |
Interactive effects: These three factors may mutually reinforce each other, thereby increasing the degree of location- boundedness, or may offset each other.
Transformation
Transformation refers to the process through which multinational enterprises (MNEs), via deliberate efforts and managerial actions, reduce the degree of location-boundedness of their advantages, thereby converting them into non-location-bounded advantages that can be more effectively transferred across borders.
IV. Research Finding: Modes of Transformation
Building on the three categories of antecedents that give rise to location-bounded advantages, the article proposes corresponding transformation mechanisms as follows.
Environmental Factors and Transformation Strategies
| Constraining Factor | Transformation Mode | Strategic Practice |
| Environmental Factors | 1. Leveraging Environmental Similarity | When the environments of the home and host countries are similar, the advantage can be directly transferred without substantial modification. |
| 2. Relocating the Surrounding System as a Whole | Move the complementary elements that enable the advantage of creating value (e.g., suppliers, partner firms) to the host country. Example: Firm B encourages its key suppliers to establish plants in Mainland China. | |
| 3. Rebuilding the Surrounding System | Reconfigure and rebuild in the host country the set of complementary elements required for the advantage. Example: Firm B re-establishes a network of company-owned stores and maintenance services in Mainland China. | |
| Intra- organizational Subsystem Factors | 1. Decoupling | Separate the advantage from specific subsystems (e.g., particular employees, language systems). Examples: codifying activity procedures into standardized documents and uploading them to the corporate network; converting a Chinese-language system into a Vietnamese- language system. |
| 2. Relocating Entire Subsystems | Transfer the entire set of coupled elements or teams tied to the advantage to the host country. Example: When building a plant, Firm C relocates its entire professional team to Vietnam. | |
| 3. Modifying Organizational Processes | Adjust managerial and operational processes of subsystems so that their interrelationships can be maintained across national borders. Example: Firm C centralizes procurement in Taiwan, with the parent company purchasing raw materials and shipping them to Vietnam. | |
| Characteristics of the Advantage | 1. Disaggregation of the Advantage | Decompose a large and complex advantage into smaller elements or modules and transfer them gradually in stages. Example: Firm D disaggregates its technology system into modules, allowing subsidiaries to select and adopt the modules they need. |
Through these transformation mechanisms, MNEs can systematically lower the location-boundedness of their advantages and enhance the feasibility of cross-border replication and deployment.
V. Conclusion and Contributions
Theoretical Contributions
- Deepening the Concept of Location-Bounded Advantages: The study conceptualizes location-bounded advantages as a matter of degree, rather than a simple binary attribute, and systematically identifies three major antecedent categories ¡ªenvironmental factors, intra- organizational subsystems, and advantage-specific characteristics¡ªthat jointly determine the degree of location-boundedness.
- Proposing a Transformation Mechanism: Multinational enterprises (MNEs) can successfully transform location-bound advantages into non-location-bound advantages through deliberate transformation efforts, thereby enabling effective multinational transfer.
- Revising Existing Views on Firm-Specific Advantages: The findings challenge the conventional assumption that technology and marketing know-how are inherently non-location-bounded advantages. The study shows that such advantages may, in practice, become location-bounded when constrained by host-country environmental conditions or intra- organizational subsystem dependencies.
Practical Contributions
- Enhancing International Competitiveness: Firms should strengthen their capability to transform location-bounded advantages into non-location- bounded ones, this transformation capability is a key manifestation of international competitiveness, as it directly supports cross-border expansion and global operations.
- Establishing Formal Advantage Management Systems: The study suggests that Taiwanese firms should learn from MNEs in developed economies (such as Firms D and E in the cases) by establishing comprehensive advantage management systems that:
- Institutionalize key advantages
- Standardize processes.
- Codify and document critical routines and know-how.
Such systems reduce dependence on specific individuals (e.g., founders or key managers) and help avoid ¡° moving-with-the-person¡± or ¡°frequent-flyer-style¡± investment patterns. Instead, they facilitate broader and more sustainable international expansion through organization-embedded, transferable capabilities.
Note: For detailed references, please consult the original article.
*The financial support of the Research Institute for the Humanities and Social Sciences, National Science and Technology Council, is gratefully acknowledged.