136  Return on Invested Capital
standard packaging requirements. Its retail stores are highly standardized and 
operate at low labor costs because customers pick up their furniture, still in 
packages, directly from storage. By making sure all these steps in the chain 
also stay carefully aligned with customer preferences, IKEA has become the 
largest furniture retailer in the world, operating more than 400 stores in more 
than 50 markets as of 2018.
Unique Resources  Sometimes a company has access to a unique resource 
that cannot be replicated. This provides a significant competitive advantage. 
For example, in general, gold miners in North America earn higher returns 
than those in South Africa because the northern ore is closer to the surface, so 
extracting it is easier and costs less. These lower extraction costs are a primary 
driver of higher returns from North American mines (though partially offset 
by higher investment costs).
Another example is Nornickel’s nickel mine in northern Siberia. The con-
tent of precious metals (e.g., palladium) in the mine’s nickel ore is significantly 
higher than in the ore from Canadian and Indonesian mines. In other words, 
Nornickel extracts not only nickel from its ore but also some high-priced palla-
dium. As a result, Siberian mines earn higher returns than other nickel mines.
Geography often plays a role in gaining advantage from unique resources. 
Obviously, most leading seaports and airports owe their success to their spe-
cific location. The Port of Rotterdam Authority operates the largest seaport 
of Europe, benefiting from a location that connects the Rhine River (Europe’s 
busiest waterway) and the continent’s largest economy (Germany) to the 
North Sea and global shipping routes. But geography is important not only for 
infrastructure companies. In general, whenever the cost of shipping a product 
is high relative to the value of the product, producers near their customers 
have a unique advantage. China is the largest consumer of iron ore. South 
American mines, therefore, face a distinct transportation cost disadvantage 
compared with Australian iron mines, and this contributes to the South Amer-
ican mines’ lower returns compared with Australian competitors.
Economies of Scale  The notion of economies of scale is often misunderstood 
to mean that there are automatic economies that come with size. Scale can 
indeed be important to value, but usually only at the regional or even local 
level, not in the national or global market. For example, for many retail busi-
nesses in dry cleaning, funeral services, or workspace rentals, it’s much more 
important to be large in one city than large across the entire country, because 
local costs for facilities and advertising are either lumpy or fixed. Buying ad-
vertising airtime and space in Chicago is the same whether you have one store 
or a dozen. Likewise, a key element that determines the profitability of health 
insurers in the United States is their ability to negotiate prices with providers 
(hospitals and doctors), who tend to operate locally rather than nationally. The