Companies that rely on unique business structures for competitive advantage at home will face the greatest difficulty expanding geographically. Advantages that derive from a unique distribution system, localized scale advantages, or favorable regulatory treatment may not be replicable abroad. The inability of grocery retailers, hospital operators, and airlines to globalize their businesses successfully testifies to this effect.
Conversely, certain types of competitive advantages travel better to new places than others. Thanks to the globalization of travel and media, premium brands transition relatively easily into new markets. Louis Vuitton and Nike are well-known in all corners of the world, even where their merchandise is not yet available. Manufacturers operating their own stores enjoy a particular advantage, as their vertical integration makes them less reliant on a country’s infrastructure.
The uncertainty of geographic expansion leads us to prefer companies with proven track records of successfully exporting competitive advantages into new geographic areas.