This article, the first of a two-part series, shows how the value-added chain can be used to analyze sources of international strategic advantages. The author argues that it is essential that a distinction be drawn between competitive and comparative advantage. He illustrates the importance of this distinction by looking at structural shifts in the world economy and arguing that these shifts reflect changes in comparative advantage. The impact of these changes leads to only a few choices for the firm facing import competition and possessing no competitive advantage. The author stresses that if the global advantages acquired by international participation are not sustained, competition reverts to domestic competition among firms with different national names.
Research for this article was funded by the Reginald H. Jones Center of The Wharton School. The author thanks Ned Bowman, Paul Browne, Jean Francois Hennart, Laurent Jacque, Franklin Root, Harbir Singh, and Louis Wells for their help.