Location advantages are those that occur from performing a value creation activity in the most advantageous location for that activity- in whichever part of the world that might be (transportation costs and trade barriers permitting). Locating a value creation activity in the most favourable location for that activity can have one of two effects.
i) lower the costs of value creation, helping the company achieve a low-cost position or
ii) enable a company to differentiate its product offering and charge a premium price.
A company that realises location economies by dispersing each of its value creation activities to its optimal location should have a competitive advantage over a company that concentrates all its activities at a single location. It should be better able to differentiate its product offering and lower its cost structure than its single-location competitor. The basic assumption is that by dispersing its manufacturing and design activities, a firm will be able to establish a competitive advantage for itself in the global marketplace.
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