The fit of competitive strategies and firm-specific advantages with country-specific advantages in explaining manufacturing location choices

Abstract

Purpose This paper aims to clarify the fit of competitive strategies and firm-specific advantages (FSAs) with country-specific advantages (CSAs) in explaining manufacturing location choices at product category level in the European automotive industry. Design/methodology/approach Seven hypotheses are formulated and tested using binomial logistic regression with data from 148 passenger car models (i.e. product category level) that are sold in Europe and manufactured in countries that offer CSAs of either cost advantages or differentiation advantages. The first four hypotheses test manufacturing location choices of product categories pursuing cost leadership strategy, differentiation strategy, focus strategy and hybrid strategy. The other three hypotheses test whether FSAs of R&D capability, marketing capability and operations capability will impact on the manufacturing location choice. The tests control for the type of passenger cars as well as the manufacturer’s region of origin. Findings While pursuing cost leadership strategy leads to manufacturing in countries that offer cost advantages, pursuing differentiation strategy as well as strong R&D capability and marketing capability result in manufacturing in countries that offer differentiation advantages. Focus strategy, hybrid strategy and operations capability do not have an impact on the manufacturing location choice at product category level. Research limitations/implications Conducting empirical research at product category level is subject to limitations in the choices of FSAs due to lack of availability of data. Practical implications Managers should assess the competitive strategies and FSAs of their product categories and then decide about manufacturing locations based on their fit with host country CSAs. Policymakers should understand the CSAs of their countries and target to attract manufacturing FDI from product categories with matching competitive strategies and FSAs. Originality/value The research contributes to discussions in explaining manufacturing location choices. Its originality lies in being the first study to test the fit of competitive strategies and FSAs of product categories with CSAs.