In this chapter we position international strategy as a significant extension of the logic of competitive advantage. We do not go into a full discussion of how the economics of trade interrelates with the genesis and nature of multinational firms – this is the province of international business as a subject. However, the subjects do overlap and what we do is reflect on how the eternal verities of competitive strategy (cost and differentiation) are played out on the international stage.

The chapter opens with a review of international trade and its institutional context and the significance of ‘national’ competitive advantage. This should be read as an extension of the discussion on macroeconomics in Chapter 4. The core of the chapter revolves around the nature of globalization and the sources of competitive advantage that flow from this. Whereas internationalization of companies (exemplified in the internationalization process) is seen as the general consequence of international trade, globalization is presented here as a particular form of this – the (debatable and controversial) trends towards international standardization.

The second key element of the chapter concerns the application of standardization strategies (crudely speaking, cost-based) versus differentiation strategies (differentiation- based). Following from this is the tantalizing debate as to whether both are possible (the transnational solution). You will recall from earlier chapters that exactly the same debate has taken place within competitive strategy about the possible simultaneity of cost- and differentiation-based strategies.

The importance of these discussions is profound because they effect the balance between country-specific advantages (CSAs) and firm-specific advantages (FSAs). These issues are discussed against the broad backdrop of Porter’s diamond and the double diamond extensions popularized by Rugman. They are also discussed specifically in terms of the advent of the ‘flagship firm’ with its ability to manage its context and secure its position.

Just as in corporate strategy (Chapter 9) the nature of the (international) strategy has to be complemented by appropriate organization structures and processes. The logic of strategy and structure implies that complex strategies seem to require complex organizations such as the matrix form. Note that ABB, as discussed in Chapter 9, is not simply a complex corporate structure; it is also essentially an international portfolio for which Barnevik prescribed a matrix structure.

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