|Identifying the separable links in the firm's value-added chain.|
|In the context of those links, determining the location of the firm's competitive advantages, considering both economies of scale and scope.|
|Ascertaining the level of transaction costs between links in the value-added chain, both internal and external, and selecting the lowest cost mode, which implies conscious steps to minimize those transaction costs.|
|Determining the comparative advantages of countries (including the firm's home country) relative to the production of each link in the value-added chain and to the relevant transaction costs.|
|Developing adequate flexibility in corporate decision making and organizational design so as to permit the firm to respond to changes in both its competitive advantages and the comparative advantages of countries, both being highly dynamic.|
Each of these steps requires some further definition and expansion.
A firm's product, whether it be "hard" (a good) or "soft" (a service), consists of a bundle of activities--a value-added chain--some or all of whose links may be performed by the firm itself (i.e., internalized). Others may be purchased from unrelated parties, or contracted out (i.e., externalized). It is often rewarding to look at what theoretically could be performed by a