Final answer:
Global firms engage in vertical integration to reduce transportation and transaction costs by taking control of various aspects of the supply chain, which optimizes the production process and leverages economies of scale.
Step-by-step explanation:
The tactic that global firms engage in to reduce transportation and transaction costs is vertical integration. Vertical integration involves a company expanding its control over various aspects of production and distribution in its industry. By controlling more of the supply chain, companies can reduce transportation costs by ensuring that different stages of production are in closer geographic proximity. They can also lower transaction costs by reducing the need for negotiation with suppliers and customers, because the company itself functions as both in many instances.
This approach is part of intra-industry trade where firms focus on specialized learning and taking advantage of economies of scale. By splitting up the value chain, a firm places different stages of production in various countries, which can optimize processes and reduce costs. Intra-industry trade, largely practiced by countries with similar income levels and advanced technology, leverages competitive advantages and encourages dynamic improvements in productivity.